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Keeping It Real Estate

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

Posted in Real Estate News

Back to basics: what to do when you receive a break notice

In the current climate, all types of occupiers including occupiers of retail, office and warehouse space, will be considering their leasing requirements and looking to rationalise their property portfolios.  As a result, landlords may find that they are seeing an increase in the number of tenants seeking to operate break rights in leases.

For obvious reasons, receiving a break notice from a tenant is often not what a landlord wants.  However, if as a landlord you do receive a purported break notice from a tenant, it is worth bearing in mind that there are a number of hurdles the tenant will still need to overcome before it successfully brings its lease to an end.

Has the break notice been validly served?

Landlords often receive break notices that, for one reason or the other, are arguably invalid:

  • Has the notice been served on the correct party?

Often tenants will fail to properly identify the landlord, or they may serve the notice on a party other than the landlord, most often a managing agent or the landlord’s solicitor.  This may result in the break notice being invalid.

  • Has the correct method of service been used?

The ‘service of notices’ provision in any lease may require the tenant to serve a notice on another party as well as the landlord, or at more than one specified address, or adopting a particular method of service (e.g. by hand).  If the tenant fails to strictly comply with any mandatory service requirements in its lease, then the break notice is likely to be invalid.

  • Has sufficient notice been given?

Invariably break provisions will require a tenant to give a certain amount of notice, whether this be three months, six months or some other period.  Tenants will sometimes fail to give sufficient notice, often by either a day or two if the tenant has simply miscalculated a notice period.  Failure to give sufficient notice will invalidate the notice.

  • Has too much notice been given?

There is case law to suggest that a tenant cannot serve a notice too far in advance.  For example, if a tenant has to give six months’ notice and, in fact, gives notice a number of years in advance, this may, depending on the specific wording of the break clause in question, invalidate the notice.

There are, of course, many other deficiencies which may invalidate a break notice.  Therefore, if a landlord does receive a notice purporting to break a lease, it is worth seeking advice as to its validity before corresponding further with the tenant.

Has the tenant complied with any break conditions?

Most leases will impose certain break conditions on a tenant.  Two usual break conditions will be that the tenant has paid all rent due under the terms of the lease, up until the break date, and that, on or before the break, the tenant has given up occupation of the premises.

It is important to remember that, if a break is due to operate midway through a quarter and there is a condition requiring that the tenant must have paid all rent due under the lease up to the break date, the tenant must have paid the full quarter’s rent in order to satisfy the break condition.  Further, in the absence of an express provision in the lease to the contrary, the landlord will not be obliged to repay any overpaid rent.

It is also worth noting that some leases will have particularly onerous break conditions, such as requiring a tenant to give up vacant possession (as opposed to just occupation), or to carry out certain reinstatement or repair works.  Such conditions could well provide a landlord with the opportunity to argue that a tenant has failed to operate a break.

If a tenant fails to comply with any break condition (no matter how onerous) then, unless the landlord waives such non-compliance, the lease will continue.

So what should landlords do?

If a landlord receives a break notice, it should not just assume that it is valid or accept that the lease is going to terminate on the date specified in the notice.

It is often worth a landlord seeking advice on the validity of a break notice and also any break conditions, which may provide it with an opportunity to challenge a tenant’s ability to break its lease.

Posted in Case Updates

Opposing a lease renewal on redevelopment grounds – a helpful case for landlords

The case of London Kendal Street No3 Limited v Daejan Investments Limited (2019) provides some useful guidance on what a landlord needs to show in order to successfully oppose a tenant’s right to renew its tenancy on the ground that the landlord intends to demolish or reconstruct the tenant’s premises.

A landlord’s right to redevelop

The most commonly used ground by landlords to oppose a tenant’s right to renew under the Landlord and Tenant Act 1954 (the “Act”) is set out in section 30(1)(f) of the Act. Under ground (f), a landlord may oppose renewal if:

“on the termination of the current tenancy the landlord intends to demolish or reconstruct the premises comprised in the holding or a substantial part of those premises or to carry out substantial work of construction on the holding or part thereof and that he could not reasonably do so without obtaining possession of the holding”

In order to prove ground (f) a landlord:

  • must have a fixed, settled and unconditional intention, as at the date of trial, to carry out works of redevelopment to satisfy ground (f) (the subjective test); and
  • has to show that it has a reasonable prospect of being able to carry out the works, i.e. a reasonable prospect of obtaining building consents, planning permission and being able to show that it has funding available for the project (the objective test).

The facts

London Kendal Street No3 Limited, the tenant, occupied premises at a building called Park West, on Edgeware Road.  It occupied these premises by way of four leases.

In 2017, Daejan, the landlord, opposed renewal of the tenant’s lease of suite C2 at the premises, specifying ground (f).

At around the same time, Daejan began to carry out significant works to the basement of the premises.  These works “involved highly intrusive noise levels”.  As a result, London Kendal Street threatened to seek an injunction to stop the works on the basis that the works breached the landlord’s covenant for quiet enjoyment and amounted to a derogation from the landlord’s grant.  Daejan ceased the works in order to try to agree a programme of reasonable measures with the tenant.

In the meantime, the tenant challenged the landlord’s ability to satisfy ground (f) and this matter eventually came to court in March 2019.

It was not disputed at trial that the landlord had the necessary funding for the works, had obtained planning permission and had entered into a building contract with the contractor.

However, the tenant argued that the works to suite C2 would repeat the “intolerable disturbance” which had resulted from the basement works and, as a result, the tenant would “have no hesitation in seeking interim injunctive relief to prevent the [landlord’s] works from unlawfully interfering” with its use and enjoyment of its remaining premises.  As a result, the tenant argued that there was a “high risk” that the landlord would be unable to undertake the works to suite C2, meaning that the landlord could not satisfy the objective test.

Decision

The judge noted that “there is a real possibility that such proceedings [for an injunction] will be issued by the claimant if the work commences and that they may succeed (to a certain extent) if the works cause disruption”.

However, the judge reasoned that even if an injunction of some kind was granted, “a court would be reluctant to leave the parties in a situation whereby one party (the defendant) is prevented from carrying out works on their own property…”.

The judge concluded that, notwithstanding the risk of an injunction, the landlord had established a reasonable prospect of being able to carry out its works to suite C2, thereby satisfying the objective test.  The judge also concluded that the landlord had satisfied the necessary subjective test.

Good news for landlords

Often redevelopment works will be noisy and intrusive meaning that there is a high risk of complaints from neighbouring landowners and adjoining tenants, which may often result in legal letters threatening injunctions.  However, what this case helpfully demonstrates is that the mere threat or possibility of an injunction should not be used by a tenant to create another hurdle for a landlord seeking to oppose a tenant’s right to renew its lease.

London Kendal Street No3 Limited v Daejan Investments Limited (2019)

Posted in Real Estate News

Section 21 is dead. Long live section 8!

The future of the UK rental market is emerging. The government wants views on its plans for removing the assured shorthold tenancy (AST) regime and bolstering the court process for gaining possession of a property. Will it be enough to fill the vacuum left by the AST regime?

Background

In April, we blogged about the government’s plans to abolish section 21 of the Housing Act 1988 which, the government said, left tenants vulnerable to indiscriminate and arbitrary eviction. Under section 21, landlords can terminate a tenancy on two months’ notice following the initial fixed term of not less than six months, without an underlying reason. The government also assured landlords that it was mindful of their need to legitimately and swiftly end tenancies to reclaim their property under the section 8 process.

This consultation, published on 21 July and lasting 12 weeks until 12 October, will help put the flesh on the bones of what James Brokenshire, former Communities Secretary, described as “a generational change to the law that governs much of the rental sector”. While the government has set out its broad principles and objectives, there are unanswered questions on the scope and nature of the changes. This consultation will inform the detail of what comes next and how the government will balance the interests of tenants and landlords, which it says at the moment is “not as fair as it should be”.

Specifically, the government is still pondering a number of issues including:

  • Should it go further and introduce a minimum length for fixed term tenancies?
  • How can it beef up the section 8 process?

The fixed term tenancy: an endangered species?

Abolishing section 21 does not mean the end of fixed term tenancies. Parties can specifically agree a tenancy agreement for a fixed length of time or for a period that continuously rolls over. Contractually agreed break clauses are a common feature of fixed term ASTs and give both parties the ability to exit the tenancy at given points during the agreement. How will these break options operate in the post section 21 regime?

A tenant will (as currently) be able to end a fixed term tenancy after the end of the fixed term or at an agreed break point but a landlord will only be able to end the tenancy (fixed term or periodic) by issuing a section 8 notice and demonstrating one of the statutory grounds for seeking possession. It could operate a break clause but, if the tenant refuses to leave, the landlord will have to seek possession under section 8.

As with its previous consultation, the government is still considering whether to introduce a minimum length for fixed term tenancies and seeks views on whether that should be six months, 12 months or two years.

It says that a minimum term: “would provide landlords with the assurance of guaranteed rental income for a defined period of time. Tenants would benefit from the certainty of established terms and conditions, without the worry of having to routinely agree to end the tenancy early”.

Eight with weight

Without section 21, landlords will need to rely on section 8 to reclaim their properties. The government is considering enhancing section 8 powers in two ways – by expanding the grounds to end a tenancy and by expediting the underlying court process.

Under the current rules, a landlord may only issue a section 8 notice to possess their property in specific circumstances, principally where the landlord wishes to occupy or redevelop the property themselves or where the tenant has substantial rent arrears. The government is contemplating allowing section 8 notices to be served if a member of the landlord’s family wishes to live in the property. It is also pondering allowing section 8 evictions when the landlord wishes to sell the property, although this right would only be available after two years of a fixed tenancy. Neither of these grounds will benefit institutional investors.

According to the Ministry of Justice, it takes on average 22 weeks for a landlord to take possession of its property under the section 8 court procedure. The government hopes it can reduce this by two weeks by freeing up bailiff resources to enforce judgments and amending the Civil Procedure Rules requirement for a first hearing between four and eight weeks after the Notice is served. This timeframe could be reduced by one week, with Civil Procedure Rules Committee approval, the government says.

Conclusion

The government’s reform of the rental market is still at a relatively early stage and many issues are still in play. Its intended direction of travel is clear though and landlords and tenants should prepare for a future without section 21.

Posted in Real Estate News

Motive Matters … Can land owners rely on redevelopment plans to resist Code rights?

It has been almost 18 months since the new Electronic Communications Code changed the legal landscape for telecoms operators and land owners. At its core, the Code is a framework for operators to obtain rights to install their apparatus on private land. The policy behind the Code is to improve our communications infrastructure so that the public has access to a choice of high quality telecoms networks. Once an operator has Code rights, they can only be terminated on limited statutory grounds and it is often a lengthy and complex process. However, land owners can oppose the grant of Code rights if they intend to redevelop their land and could not reasonably do so if Code rights were granted. The Upper Tribunal (Lands Chamber), which is the judicial body tasked with resolving disputes under the Code, has now released its first decision on this issue.

The operators, EE and Hutchinson 3G, had masts on an Estate in Hampshire owned by The Meyrick Trust. They sought to renew their rights under the old Code but negotiations had stalled, so the operators applied to the Tribunal to impose fresh rights under the new Code. The Trust opposed the application. It alleged that it proposed to redevelop the land by installing its own masts which would provide a private, wireless broadband network for the Estate as well as providing space for any operator to install apparatus for their mobile network. An important point to note is that operators can only obtain Code rights over land, which expressly excludes equipment such as masts. Therefore, by installing its own masts, the Trust would be able to negotiate terms (and importantly higher rents) with the operators free of the constraints of the Code.

The Tribunal considered the cases regarding the Landlord and Tenant Act 1954, where a landlord can oppose the grant of a business lease renewal if it intends to redevelop. Whilst the 1954 Act cases are not binding on the Tribunal and there are differences in the drafting between the relevant provisions of the 1954 Act and the Code, the Tribunal adopted relevant principles from the cases:

  • The land owner’s intention to carry out the redevelopment must be firm, settled and unconditional (the subjective test);
  • There must be a reasonable prospect of bringing about the redevelopment (the objective test); and
  • Both tests are judged at the date of the hearing.

The Tribunal was satisfied that the Trust had met the objective test: it had obtained planning permission for the masts and it had the finances to implement the scheme. However, the Tribunal doubted that the Trust had an unconditional intention to implement the scheme and instead found that the Trust’s true motive for the redevelopment was to prevent the acquisition of Code rights.  Land owners seeking to rely on redevelopment plans to resist Code rights should take note. If the evidence doesn’t stack up, the Tribunal has sent a strong message that they will not allow a land owner to purposefully frustrate a central policy of the Code.

EE Ltd and Hutchison 3G UK v Meyrick 1968 Combined Trust of Meyrick Estate Management [2019] UKUT 164 (LC)

Posted in Real Estate News

Game, set and match for leasehold housing and ground rents: Government responds to its consultation on leasehold reform

Last week saw a volley of government announcements for the private rented sector and investors in leasehold residential property.  At the Chartered Institute of Housing Conference on 27 June, Prime Minister Theresa May and Communities Secretary James Brokenshire  announced “bold action”, as soon as parliamentary time allows, to empower tenants and tackle perceived inequality in the private rented sector between landlords and tenants.  On the same day, the government published its response to the consultation on “Implementing reforms to the leasehold system in England”.

In October 2018, the government opened its consultation on reforms to the leasehold system in England, focussing on what it described as the unjustified use of leasehold for new build houses, and tackling “pernicious” ground rents with a proposal to implement an annual cap.

At last week’s conference, the Prime Minister announced that an action plan and implementation document will be published in September, “enhancing the tenant’s rights” and the Communities Secretary promised measures to “confront unfairness in the leasehold market”.

The promised reforms include the main legislative changes that were foreshadowed by the consultation: banning the grant of new leases of houses; and imposing penalties on landlords who are slow to provide the information leaseholders need when they are looking to sell their properties.

As for the future of residential ground rents, the Communities Secretary has announced that all ground rents for new leases will be reduced to a peppercorn (that is no financial value).  Ahead of the consultation in the Autumn, the government had contemplated a £10 cap, but it appears that consumer opinion has persuaded the Communities Secretary to revert to the government’s original proposal, which was effectively to ban ground rents altogether on the basis that they have “no clear benefit to consumers”.  Leaving aside the question of whether this outright ban is a proportionate response to the unfairness of a specific category of ground rents (those that increase exponentially) it seems that it won’t be long before investing in ground rent income is a thing of the past.

The highlights of the government’s response to the consultation replies are:

• A ban on ground rents of any value, for all new leases, with limited exceptions for retirement properties and community-led developments;

• A ban on selling new houses on a leasehold basis (with a house being defined as single dwellings, and self-contained buildings or parts of buildings, structurally detached or vertically divided), with exceptions for shared ownership and community-led developments, retirement living and home-purchase schemes;

• A right for any tenant mis-sold a lease of a new house (that is, after the reforms become law), to acquire the freehold for no premium;

• A statutory right of first refusal for leasehold owners of houses whose landlord wishes to sell their freehold interest (echoing the existing right for tenants of flats);

• Financial penalties for landlords who take more than 15 working days to provide tenants with the vital information they need to be able to sell their lease; and

• Measures seeking to promote more fairness in the way that maintenance charges for communal areas are charged to freeholders and leaseholders.

In spite of concerns within the housing and development sectors, the ban on ground rents, and on new leases of houses will take effect immediately when legislation is passed, with only owners of leasehold land as at December 2017 allowed to continue to develop leasehold houses on their land.  The government has decided that by the time the legislation comes into effect the industry will have had plenty of time to adjust.  Legislation has been promised as soon as parliamentary time allows which, bearing in mind how busy parliament is at the moment, may be a few years away.

There seems little doubt that for a large number of investors and developers these legislative changes will have a significant effect on their developments and investments.  Time will tell how the industry will adapt to these changes, and how it will affect the future supply of much needed housing stock.

Posted in Real Estate

Sustainability – where are we now?

What are the main sustainability issues currently affecting the real estate industry?  And what are the practical implications – will they cause a change in behaviour?

Recent months have seen schoolchildren going on strike, parts of London being brought to a halt by Extinction Rebellion and climate change activists blockading corporates’ headquarters. On top of that we have seen an increasing number of severe weather events: Cyclone Fani which caused major flooding in India, torrential rains in America’s Midwest, unprecedented flooding of the Mississippi and the double whammy of Cyclones Idai and Kenneth hitting Mozambique. It is therefore no surprise that climate change is high on the social and political agenda again. Thankfully, the real estate industry is already grappling with it and there is a lot going on.

  • The Carbon Reduction Commitment was abolished at the end of April and replaced by Streamlined Energy and Carbon Reporting (SECR). Qualifying undertakings must report their carbon emissions annually, which could expose them to pressure, from both the public and their shareholders, to reduce their energy consumption.
  • April also marks one year since the Minimum Energy Efficiency Standards came into force. Many major landlords had been grappling with MEES for a number of years and had done a lot of work to anticipate it so the MEES effect was not as abrupt as many feared. Nonetheless, it is forcing a change in behaviour, and 2023 (when it will become unlawful to “continue to let” premises with an EPC rating of an F or G without a valid exemption) is not far away.
  • 5 December 2019 is closer on the horizon though. This is the deadline for qualifying undertakings to comply with their audit and reporting obligations under Phase 2 of the Energy Savings Opportunity Scheme. Whilst ESOS reporting is not public in the way that SECR is, the energy audits do have to be reviewed by the undertaking’s board of directors, who may well realise that implementing some of the changes that have been recommended will reduce costs and improve the bottom line, as well as strengthening their sustainability credentials and being a good PR story.
  • Looming even closer than that is the deadline for those who take part in GRESB to submit their 2019 reports, with the results (and the news of who this year will be awarded Green Stars) due out in September. GRESB (formerly known as the Global Real Estate Sustainability Benchmark, but now not an acronym as it covers more than just real estate) is a major benchmarking system in which a number of fund managers, asset managers and others participate annually, and which is becoming increasingly important to management mandates.

With all this legislation, investor attention and of course political and social pressure, it is no wonder that more and more organisations are building their own full-time in-house sustainability teams to navigate the sustainability compliance maze. With the UK Green Building Council and others firmly focussed on how we achieve net zero carbon by 2050, I predict that there will be plenty more regulation and best practice to come and the sustainability teams will have their hands full for the next few years!

Will all this effort really save the planet? Not on its own, obviously, but I suspect it will go some way to help. MEES in particular is really forcing a change that previous schemes like the CRC could not, but there will come a point where the lack of any resources to enforce it becomes a policy issue. There is a trajectory to stricter criteria for EPC ratings and at the same time to a higher minimum EPC rating for MEES. This will make it much harder for landlords to comply and if the lack of enforcement resources continues, some may take a calculated risk not bother. There is already a growing resentment of the application of MEES to shell space, particularly refurbished retail units. The EPC rating will be low because there is no fit-out and worst case assumptions (particularly around lighting) have to be made. This leads to a vicious circle where the lease can’t lawfully be granted because there is no fit-out, but there can be no fit-out because there is no lease. There are no simple solutions to that conundrum.

Green clauses in leases are also becoming less popular in some circles. After the initial flurry of excitement around the introduction of the Better Buildings Partnership’s Green Lease “Toolkit”, the market largely settled down to include them, but several years on the jury is out as to how effective they are.  Parties accept that clauses included in a memorandum of understanding or “light green” clauses in the lease itself have no real teeth and are arguably more aspirational.  Anecdotally, some landlords’ sustainability teams are now questioning the value of including them in new leases as, although they help to boost scores in things like GRESB, the real challenge is to change behaviour outside the lease.  Whether they survive or evolve remains to be seen, but the risk of the clauses being onerous and therefore depressing the rent on an open market review is probably still enough to deter most investors from “dark green” clauses. Standardised documents like the Model Commercial Lease (which aim to reflect the market position) contain “light green” clauses for now, but this could change in the coming years.

In my view, the direction of travel is increasing regulation and compliance and an emphasis on market forces and commercial, investor and public pressures driving actual change. Perhaps the most unrecognised pressure of all, though, is from employees, who are increasingly taking account of sustainability and social governance matters when considering potential employees. Traditionally, the imperative for tenants has always been to find the right space, in the right location, at the right price. While those fundamentals remain essential, the sustainability credentials of space, along with its internet connectivity, are becoming increasingly important in the battle to recruit and retain the best talent. All of which makes the role of the in-house sustainability team even more important and extends their role beyond energy consumption to encompass things like compliance with the UN’s Sustainable Development Goals. A lofty ambition indeed!

Posted in Real Estate News

Has your lease been validly contracted out of the 1954 Act? Landlords can breathe a sigh of relief

Earlier this month the High Court handed down its judgment in the case of TFS Stores Limited v The Designer Retail Outlet Centres (Mansfield) General Partner Limited and others which considered whether a number of leases had been validly contracted out of the Landlord and Tenant Act 1954.

Background to the case

TFS Stores Limited trades as The Fragrance Shop at a large number of locations across the UK. This case concerns just six of those locations where TFS entered into six contracted out leases with different landlords at various premises across the UK ranging from Ashford, to York, to Swindon.

The landlords decided not to renew the leases, which TFS was not very happy about. In response, TFS claimed that the leases had not been properly contracted out of the 1954 Act.

Contracting out

A prospective landlord and tenant can agree to contract out of the tenant protections afforded by the 1954 Act. This procedure involves the landlord serving a notice on the tenant in the form, or “substantially in the form” set out in Schedule 1 to the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003.

The parties must also comply with the requirements specified in Schedule 2 to that order, which include the following:

  • the tenant making a declaration acknowledging that they are losing their 1954 Act protection;
  • ensuring that the declaration is made before the tenant becomes bound to take the tenancy in question; and
  • including reference to the contracting out procedure in the relevant document creating the tenancy (usually a lease or agreement for lease).

Issues

TFS focussed on three issues with the contracting out procedure:

  • Whether TFS’s solicitors had authority to receive the warning notices.
  • Whether the TFS representative who signed the declaration had authority to do so.
  • Whether the declarations were invalid because they failed to specify the commencement date of the term of the proposed tenancies correctly.

The Court’s decision

The Court’s decision allows landlords, and their solicitors, to breathe a sigh of relief.

Authority of TFS’s solicitors

In relation to whether TFS’s solicitors had authority to receive the warning notices, the judge concluded that he was “entirely satisfied that there was actual authority…to accept service of the relevant Warning Notices“. The judge considered that this “can be analysed as express authority to accept service of the Warning Notices as part of the authority to do everything necessary to bring the matter to completion or as implied authority, incidental to the express authority, to bring the matter to such completion“.

Authority of TFS’s representative

In relation to the authority of TFS’s representative to sign the declarations, the judge was similarly dismissive of the tenant’s claim. The judge was “wholly satisfied” that TFS’s representative, Mr Thompson who was the retail director of TFS, had actual authority to execute the declarations.

The judge also considered that Mr Thompson had apparent authority to execute the declarations. The tenant’s solicitors had authority to represent that he did, and the solicitors made this representation to the landlords by providing the declarations signed by Mr Thompson. The judge found that the landlords clearly acted on this apparent authority.

No fixed term date

The leases in question did not specify a fixed term commencement date, and in some cases it was not possible to tell what the actual term commencement date would be.

The judge concluded that the failure to include a fixed term commencement date in the declarations did not invalidate them. The judge considered that the purpose of the wording in the declaration was to allow the tenancy in question to be identified and so using either the date that the interest under the lease commences or the date from which the term is calculated are both “adequate identifying badges of the prospective tenancy“.

What does this case tell us?

This case provides useful guidance for landlords and their solicitors on certain aspects of the contracting out procedure.

Fortunately for the landlords in this case, the Court took a dim view of the tenant’s attempts to wriggle out of the contracting out process; however, this case does serve as a useful reminder that the contracting out process is a key procedure which must be carefully complied with as it may, at some future point, come under scrutiny from tenants keen to avoid being decamped from their prime locations.

TFS Stores Limited v The Designer Retail Outlet Centres (Mansfield) General Partner Limited and others [2019] EWHC 1363 (Ch)

 

Posted in Planning

Legal viewpoint

Ignore errors in planning permissions at your peril

The Court of Appeal has upheld the High Court’s decision in the curious case of three temporary marquees, a backdated decision notice and the judicial review of a planning permission granted nearly six years before the claim was issued.

In September 2010 Wirral MBC resolved to grant conditional permission for the erection of three marquees in the grounds of Thornton Manor.  One of the conditions was to limit the permission to a period of five years.

Permission was eventually granted in December 2011 and the decision notice sent to Thornton Holdings, the owner of Thornton Manor.  The Council had, however, forgotten to attach to it any conditions.

In May 2012, having realised its error, the Council issued a new decision notice – backdated to November 2011 – which contained ten conditions and made the permission temporary.

Five years on from the grant of the permission, the marquees remained on site.  Thornton Hall Hotel, a competitor, urged the Council to take enforcement action.  In August 2017, nearly six years after the grant of the permission, the competitor issued its claim for judicial review.

The High Court judge exercised his discretion to extend the time within which a challenge could be brought and quashed Thornton Holdings’ permission.

Dismissing the appeal, the Court of Appeal agreed with the High Court that there were “very special reasons” to grant such a lengthy extension, finding that the judge had exercised impeccably his discretion to quash the permission.

The permission was unlawful, as was the Council’s generation of the fictitious decision notice and its manipulation of the planning register.  The Court of Appeal also gave considerable weight to Thornton Holdings’ knowledge of the defective decision notice and its decision to operate in spite of the challenge risk.

The competitor’s failure to check that the permission was consistent with the Council’s resolution did not bar its claim.  It had been “reasonably alert” and, when the Council’s error became apparent, proceeded with the claim at reasonable speed.

The Court of Appeal found that this was a case in which the interests of good administration and the credibility of the planning system weighed compellingly in favour of the Court having the opportunity to deal with the Council’s error.

While the Court emphasised that its decision did not set a precedent and that challenges must be brought promptly “in all but the most exceptional circumstances”, this is a clear reminder of the appetite of the courts to intervene to remedy obvious injustices.  The expiry of the six week challenge period doesn’t necessarily signal the “all clear” – developers aware of errors in permissions ignore them at their peril.

This blog is adapted from an article which first appeared in Planning Magazine (24 May 2019).

R (oao Thornton Hall Hotel Ltd) and Wirral MBC v Thornton Holdings Ltd [2019] EWCA Civ 737

Posted in Real Estate News

Rateable value: The Supreme Court departs from reality

The Supreme Court has decided that a rateable value of £370,000 should be entered into the ratings list for an office block in Blackpool despite there being “no actual tenant willing to pay a positive price for the building itself“.

Ascertaining rateable value

In order to work out what the rateable value of a property is, a valuation officer will need to work out what the open market rent would be for the property, by applying what is known as the rating hypothesis. The purpose of the rating hypothesis is to ascertain “the rent at which it is estimated the hereditament might reasonably be expected to let from year to year“.

For the purposes of the 2010 non-domestic ratings list, effective from 1 April 2010, the relevant valuation date at which to apply the rating hypothesis is 1 April 2008, known as the ‘antecedent valuation date’ (AVD).

Background

The property in question is known as Mexford House, an office block in Blackpool and was occupied for a number of decades by various Government departments. As of 1 April 2008, Mexford House was still occupied by two of these departments, but they had given notice to vacate, and subsequently vacated on 31 March 2009.

When the 2010 ratings list came into force, the valuation officer (Hewitt) entered a rateable value of £490,000 into the list for Mexford House, on the basis that there were similar office buildings in the local area that were occupied at similar rents. The landlord, Telereal, appealed to the Valuation Tribunal and the rateable value was reduced to £1, on the basis that there was no market for the property.

By the time that the case reached the Supreme Court, the parties were in agreement that:

  • nobody in the real world would have been prepared to occupy the property” as at 1 April 2008, because the market was “saturated“;
  • there were similar properties in the area that were let for significant rents; and
  • if the valuation exercise required to be undertaken to ascertain rateable value was allowed to take into account the general demand in the area for comparable office buildings, although there was no actual demand for Mexford House as at the AVD, the rateable value of the property should be £370,000.

The decision

The issue for the Supreme Court was whether, when ascertaining the rateable value of a property, the general demand for property in the area should be taken into account, notwithstanding there being no actual tenant willing to pay more than a nominal rent for the property in question.

The Supreme Court concluded that whether the property is occupied or unoccupied, or an actual tenant has been identified, as at the AVD, is “not critical“. The valuation hypothesis assumes a willing tenant, even in a “saturated” market.

In relation to the level of rent that a tenant is willing to pay, the Supreme Court considered that “there is no reason why…it should not be assessed by reference to ‘general demand’ derived from ‘occupation of other office properties with similar characteristics’ “.

Therefore, the Supreme Court directed that Mexford House should be entered into the ratings list with a rateable value of £370,000.

Comment

It is, of course, unusual for there to be general market demand for a type of property, but no actual demand for the property in question, so in practice the departure from reality seen in this case will not occur that often.

However, the decision itself does seem counter-intuitive. The predominant purpose of the rating hypothesis is to ascertain the market rent for a property at a specific point in time. Notwithstanding that predominant purpose, in this case the result is a significant departure from reality and seems all the more unsatisfactory given that both parties were agreed that there was no “real world” demand for Mexford House.

Telereal Trillium (respondent) v Hewitt (Valuation Officer) (appellant) [2019] UKSC 23

 

Posted in Real Estate News

Open for Business – ESOS Phase 2

Regular readers may recall that we have previously blogged a fair bit on the Energy Savings Opportunity Scheme (“ESOS”).  Phase 1 finished at the end of 2015 and we are now getting close to the end of Phase 2, as the final date for compliance is 5 December this year. See links to previous blogs for more on what ESOS is and what participants have to do.

We fully anticipate a last minute rush in Q4 of this year, just as we saw in Q4 2015, but participants that can get ahead of the curve should get better quality audits and will have plenty of time to ensure that they have complied in full, especially where careful analysis of complex corporate group and/or property ownership structures is required. Better also to implement sooner something that may actually save energy and money.

The good news for those wanting to get on with their compliance is that the Environment Agency has announced details of the new notification system for Phase 2 of ESOS and it is available for participants to use.  It replaces the existing Phase 1 notification system, which is now closed.

To make a Phase 2 notification you can now do so at https://www.gov.uk/guidance/energy-savings-opportunity-scheme-esos – and if you need to make a Phase 1 notification then you should contact the ESOS helpdesk at ESOS@environment-agency.gov.uk, who will be able to explain the process to you.

The Phase 2 notification process is, apparently, similar to the Phase 1 system, but there are two significant changes.

First, it is now possible to tell the Environment Agency that you do not qualify for ESOS using the new built-in option for this (previously you were directed to a separate system).  The visuals below summarise the qualification criteria.

And secondly, you can now upload a list of all the organisations in your participant group, either as a standard template (which is downloadable from the notification system) or in any other format you like, such as a group structure chart.

Remember, if you are a participant, the final date for compliance with ESOS Phase 2 and making your notification is 5 December 2019.  Phase 2 audits must have been carried out and compliance reports submitted by then.

A major problem in the run up to the original Phase 1 deadline (5 December 2015) was the difficulty that participants had in finding lead assessors and auditors to carry out their audits.  We therefore suggest that participants should get ahead of the crowd and start work on their audits as soon as possible.  In particular, it would be sensible to engage now with preferred auditors and lead assessors while they still have capacity to undertake the necessary work.

Qualification Criteria for ESOS

Note that:

  • a corporate group must participate as a whole if one or more of the companies in it is large enough to fall within ESOS; and
  • ESOS does not distinguish between property investors, developers, occupiers or funders, so any business that is large enough to meet the qualification criteria must participate in it.

Simon Keen
Counsel, London
E: Simon.keen@hoganlovells.com
T: +44(0)207 296 5697