Header graphic for print

Keeping It Real Estate

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

Posted in Real Estate News

Japanese knotweed: have your say

Following the Court of Appeal decision in Network Rail Infrastructure Limited v Williams and Waistell, Parliament is digging deeper to untangle the effect of Japanese knotweed on the built environment.  The Science and Technology Commons Select Committee has been tasked with ensuring that Government decisions and policies are underpinned by good scientific foundations and is calling for submissions.

Back in July we blogged on the Court of Appeal decision which awarded damages to two property owners who each owned a bungalow neighbouring part of Network Rail’s land, from which Japanese knotweed had spread.  The issue is that this invasive weed spreads rapidly and can smash through a building’s foundations causing substantial damage, affecting valuations and making the financing of impacted properties very difficult.

The Select Committee has announced it will hold a one-off oral evidence session with relevant experts in early 2019 to explore “the science behind the effects of Japanese knotweed on the built environment”.

So what does the Committee want to know?  Ahead of the session, it is calling for written submissions on:

1. scientific evidence regarding the impact of Japanese knotweed on the built environment;

2. how the presence of Japanese knotweed affects lending decisions and property valuations;

3. whether lending decisions relating to Japanese knotweed are based on sound scientific evidence of its effects on the built environment; and

4. what guidance for the sector currently exists, the impact of existing legislation, and how else evidence-based responses to the presence of Japanese knotweed can be encouraged.

If you would like to respond the inquiry page contains a submissions form.

The Committee is also keen to hear from the public about their experiences of dealing with Japanese knotweed, whether this arises through being a homeowner, a tenant, a prospective purchaser or a developer. You can respond via this webform, and the Committee will be inviting a number of those who respond to an engagement event in Westminster on 21 January 2019.

All written submissions and contributions should be provided by 31 December 2018.

Watch this space – we’ll be blogging the latest developments in the New Year.

Posted in Real Estate News

A landlord’s intention to redevelop – breaking news from the Supreme Court

The Supreme Court has handed down its judgment in the case of S Franses Limited v The Cavendish Hotel (London) Ltd in the most important 1954 Act case for decades. The Court’s decision clarifies the nature of the ‘intention’ which a landlord must have in order to oppose a tenant’s right to renew its tenancy on the ground that the landlord intends to demolish or reconstruct the tenant’s premises.

Whilst the Court confirmed that a landlord’s motives for carrying out works are irrelevant, the Court made clear that a landlord’s intention to carry out works must be unconditional.

A landlord’s right to redevelop

The Landlord and Tenant Act 1954 (the “Act“) provides tenants with a statutory right to renew their tenancies of business premises, subject to the ability of the landlord to oppose renewal on a limited number of grounds.

The most commonly used ground by landlords to oppose renewal is set out in section 30(1)(f) of the Act, known as ground (f), and provides that 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

The existing case law had established that a landlord must have a fixed and settled intention, as at the date of trial, to carry out works of redevelopment to satisfy ground (f) and that, provided a landlord has this intention, the landlord’s motive for carrying out works is irrelevant (even if the sole aim of the works is to satisfy ground (f) and remove the tenant).

The facts

S Franses Limited (the tenant) has a lease of premises at 80 Jermyn Street, London and deals in antique tapestries and textile art. Its landlord is the Cavendish Hotel.

In 2015, the tenant sought to renew its lease and the landlord opposed renewal relying on ground (f). Over the next 18 months the landlord proposed three different schemes of works, the latest of which was known as Scheme 3, which was the scheme of works which it ultimately relied upon at court.

The first instance decision

At first instance:

  • the judge acknowledged that “some aspects of the intended works have been contrived only for the purposes of ground (f)“;
  • it was acknowledged by the landlord that the works would not be undertaken if the tenant left voluntarily, but that if possession on redevelopment grounds was ordered, the entirety of the works would be carried out; and
  • it was acknowledged that the works that the landlord intended to carry out would not provide any utility to the landlord without further works that required planning permission.

At first instance the judge decided that the landlord had satisfied ground (f) and was entitled to possession of the premises.

The appeal

The tenant appealed to the High Court on a number of grounds; however, the High Court rejected the tenant’s appeal in relation to the landlord’s intention. The tenant was then given permission to appeal directly to the Supreme Court.

In the Supreme Court the tenant argued that:

  • when Parliament said that a landlord has to intend to do works of demolition, reconstruction or construction in order to satisfy ground (f), what it meant was that such works had to have some commercial purpose beyond trying to get vacant possession from a tenant; and
  • when the Act says that the landlord ‘intends’ to carry out works, that intention needs to be unconditional, i.e. the landlord does not have the necessary intention if it would not carry out the works if it could get possession of the premises by some other means (i.e. if the tenant leaves voluntarily).

Significantly, the Supreme Court made clear that a landlord’s intention to carry out works to satisfy ground (f) must be unconditional. Lord Sumption stated: “The landlord’s intention to carry out the works cannot therefore be conditional on whether the tenant chooses to assert his claim to a new tenancy and to persist in that claim“.

In this case, the landlord had admitted that it would not carry out the works if the tenant left voluntarily. As a result, the landlord’s intention was not unconditional, so was not sufficient to satisfy ground (f). In Lord Sumption’s view: “The acid test is whether the landlord would intend to do the same works if the tenant left voluntarily“.

However, the good news for landlords is that the Supreme Court was clear that a landlord did not have to show that the works were reasonable or had some commercial purpose (above and beyond removing the tenant) in order to satisfy ground (f). That argument was “not only more radical in its implications but more difficult to reconcile with established authority on the Act of 1954“. Therefore, it remains the case that a landlord’s motive for carrying out the intended works is strictly irrelevant.

What does this mean for landlords and tenants?

Going forwards, if landlords are seeking to rely on redevelopment grounds to remove tenants, they will need to be prepared for the fact that they will have to show that they will carry out the required works whether or not a tenant leaves voluntarily. This may well be more difficult to show in cases (such as Franses) where the only reason for doing the works is to remove the tenant and will, naturally, provide tenants with further opportunity to seek to challenge a landlord’s intention to carry out works.

S Franses Limited v The Cavendish Hotel (London) Ltd [2018] UKSC 62

Posted in Real Estate News

How electric vehicles are driving change

The demand for electric cars is rising. In 2011, only 1,000 electric vehicles were sold in the UK. In 2018, this number increased to 485,000, with a new electric vehicle being registered with the DVLA every 3.6 seconds, and whilst only 3-4% of all vehicles are now plug in, this figure is expected to be 10% by 2020.

Why is the market for electric vehicles expanding so rapidly? Arguably the most important reason is that consumers are increasingly concerned about climate change and air pollution and are adapting their spending patterns accordingly. However, although electric vehicles are a more environmentally friendly alternative to petrol cars, the market continues to lag behind the traditional automotive sector for a number of reasons

1. “Range Anxiety”

One of the most significant concerns of consumers is that they won’t be able to find a charging point when they need one and so their electric vehicle will run out of charge mid-journey. Whilst in reality this is unlikely, owing to the large and ever improving capacity of the batteries powering electric vehicles, until consumers get used to the technology and feel assured that they will be able to charge their cars whenever they need to, electric vehicles are unlikely to be used on a mass scale.

Of course, this means an enormous investment in charging infrastructure in residential areas (it is estimated that about 56% of charging will take place at home), workplaces and destinations such as retail parks and shopping centres. However, it is not as straightforward as just increasing the availability of charging points. A number of issues need to be considered including: the right connectors for different fleets; the right speed of charge; and how the vehicle owner will pay for use of the charging point.

Dwell time also needs to be factored in. “Quick-charge” points for short stops at petrol station type venues will be essential to tackle range anxiety. Equally, if slower speed charging points are installed at shopping centres and retail parks, range anxiety could be capitalised on to increase both footfall and dwell time and to encourage customer spend.

2. Grid connection

Particularly in urban areas, the uptake of electric vehicles on a mass scale will put strain on grid infrastructure. As things like lighting and appliances are anticipated to become more efficient, and the use of renewable energy increases, there is likely to be some surplus capacity in the power system so in aggregate, electric vehicle adoption will probably keep the supply/demand ratio for power flat, rather than increasing it. However for this to be the case and to avoid costly upgrades in grid infrastructure, we need to improve how we manage the energy we already generate and continue to invest in renewables.

3. Reliability of technology

Service levels and the reliability of the technology are critical too. Battery storage and battery degradation contribute to range anxiety and also lead to rapid product redundancy. This means many consumers do not feel confident using an electric vehicle, or will want to wait until they feel the technology is proven before making the leap from the traditional combustion engine.

At present batteries represent 40% of the cost of an electric vehicle and increasing the storage capacity and lifespan of a battery is extremely expensive on a large-scale. The majority of electric vehicles are therefore small cars; logistics vehicles are lagging behind because of their weight and the distances they travel.

However, hopefully this issue will soon be resolved as manufacturers are investing heavily in improving batteries and expect to develop a battery that can power an SUV in the next year. This in turn should help overcome range anxiety and lessen pressure on the grid by reducing the regularity of charging.

4. Barriers to entry

The costs of investing in infrastructure, batteries and other associated technologies are currently all being passed on to consumers, so electric vehicles are, for now, unaffordable for many. However price parity between electric vehicles and traditional vehicles is expected by 2022, and once it becomes cheaper to own and operate an electric vehicle rather than one with an internal combustion engine, we can expect to see their take up surge.

Other issues to consider are insurance and maintenance (whilst electric vehicles have 10% fewer moving parts, a more qualified electrical engineer is required to repair them). Even if electric and non-electric vehicles are the same price, in order for consumers to perceive the electric vehicle as the better buy, they need to feel that once they have purchased the vehicle it will not be more difficult to maintain than a traditional car.

By 2040 all vehicles sold in the UK must be zero emissions, so a mass adoption of electric vehicles seems almost inevitable. However, a distinction needs to be drawn between urban, suburban and rural areas. In the short term, electric vehicles are most likely to be used in urban areas where shorter distances are driven, there are more charging points and there is greater pressure to reduce emissions. Whilst electric vehicles are on the cusp of becoming mainstream in cities and large towns, it will likely take longer for them to become commonplace in rural areas where we will may continue to see traditional car ownership in the medium to long term.

Posted in Real Estate News

RIP CRC: What do I need to do when the CRC ends?

So the Carbon Reduction Commitment  Energy Efficiency Scheme (the “CRC”) is being scrapped.  Are there any practical steps I need to take now?

The Environment Agency has just published guidance to participants in the CRC on what to do now it is being closed.  As we blogged previously, the current compliance year (ending 31 March 2019) will be the last one for CRC.

The guidance describes the steps you need to take, which are:

  • collecting all relevant CRC data for this compliance year;
  • submitting an annual report for this compliance year (by no later than 31 July 2019);
  • ordering the allowances needed to cover your 2018/19 emissions (this needs to be done between 1 June 2019 and 31 July 2019);
  • paying for all allowances you’ve ordered (which needs to be done between 2 and 19 September 2019);
  • surrendering the correct number of allowances (by no later than 31 October 2019);
  • maintaining up-to-date contact details on the CRC registry (until 31 March 2022); and
  • maintaining a CRC evidence pack (until 31 March 2025).

The guidance also makes it clear that you do not need to:

  • collect any CRC data after 31 March 2019;
  • make any annual CRC reports for years beyond this compliance year;
  • register for any further phases of the CRC; or
  • pay any further subsistence fees, unless they are already due.

It goes on to say that you can correct any reports you’ve submitted for previous years or, if necessary after it is submitted, the report you submit for this final compliance year.  There is a process for buying additional allowances until the end of February 2022.  If after that date any participant is discovered to have surrendered too few allowances for any compliance year, the CRC administrator will be able to impose a penalty at least equal to the value of the allowances shortfall.  You are therefore strongly advised to check your reports and the allowances you have surrendered for previous years as soon as possible, so that if any corrections or additional allowances are needed, you can sort this out well before the end of February 2022.  The CRC regulators can continue to conduct compliance audits, and will take enforcement action against CRC participants who are found to have surrendered too few allowances, until 31 March 2025.

The guidance states that the Department for Business, Energy and Industrial Strategy has indicated that the current rules for allowances refunds will continue as they are until 31 March 2022.  After that date the Secretary of State may refund any unsurrendered allowances (which implicitly means that he may decide not to do so too).  Again, therefore, if you have bought more allowances than you needed for any compliance year (and you are confident that your returns are accurate and therefore you do not need to surrender them for any other compliance year) make sure you act quickly whilst there is still a clear framework for refunds.

The CRC is not being replaced directly, but the Climate Change Levy has been increased to ensure that the abolition of the CRC remains fiscally neutral to the Treasury.  A brand new regime known as Streamlined Energy and Carbon Reporting (“SECR”) is currently being proposed that will require certain businesses to report on their carbon dioxide emissions and energy use in annual reports.  The government consulted on SECR over the summer and published its response to the consultation in October, which confirmed that the government will be proceeding largely as suggested in the consultation.

We will provide further comments on SECR once legislation has been published that gives us more detail on how it will work.  It is going to be more limited in its scope than the CRC and, in particular, will not apply to any public sector bodies at all, or to any overseas companies or undertakings (although the UK subsidiaries of overseas companies could be included if they satisfy certain tests).  Watch this space – we’ll be blogging with more details as soon as they’re available.

Posted in Real Estate News

A new challenge in the mix: Hotel developments to provide affordable housing?

It is no secret that this is a challenging time for the hotel industry in London with peak prices, a shortage of viable sites, uncertainty over labour and rising costs and taxes. Notwithstanding, one London Borough has decided that hotels should also be doing their bit to address the housing crisis.

In its draft City Plan, published on 12 November, Westminster City Council has proposed affordable housing requirements for many hotels in the Central Activities Zone.  In particular:

• hotels of 750m2 – 999m2 would need to pay a financial contribution for the provision of affordable housing; and

• hotels of 1,000m2 or more would have to provide 35% of their floor space as affordable housing.

The draft document has scant detail on how this would work in practice.  And whilst it does recognise that there may be some areas where a contribution might be more appropriate than onsite provision (provided the developer can demonstrate that it is not practicable or viable to provide it on site), the Plan is clear that in most cases the starting point should be affordable homes being provided as part of the same development.

The practicalities of onsite provision are unlikely to be the only issue. Assessing the viability of providing affordable housing may pose its own challenges.  Many local authorities have enough difficulty trying to apply their affordable housing assessment models to Build-to-Rent housing.  This does not bode well for trying to apply affordable housing requirements to an entirely different type of use on which the local authority is not resourced with expertise. Will the local authority appreciate that hotel developments can be intricate and how common areas are used and accessed, hotel lay-outs, design and the type of brand or operator a site may attract are all important considerations in a hotel development?

Further, whilst the Plan does recognise the need to maintain Westminster’s draw as a visitor destination, and protect all the benefits that brings, including by protecting existing hotel facilities, there are also other key points that hotel developers and operators should be aware of:

• There will be a bar on new hotels over 2,500m2 in the Soho Special Protection Area;

• New hotels will be directed to the CAZ, meaning those looking to develop hotels elsewhere to avoid the affordable housing requirements are likely to have little joy; and

• Extensions to existing hotels will be linked to upgrade of that hotel, and will not generally be able to include new or additional facilities to be used by non-residents. This comes at a time when it is important for the industry to be innovative and explore sources of income and models other than room lettings or traditional F&B services.

The consultation on the draft Plan closes on 22 December, and those with hotel interests in not only Westminster, but the wider London area should consider making representations, as where one borough leads, others often follow.  And whilst it may be optimistic to think that the affordable housing policy will be abandoned all together, the industry should take this opportunity to voice its concerns and explain how its sector needs to operate to thrive.

More details on how to respond can be found at: https://www.westminster.gov.uk/cityplan2040

 

 

Posted in Real Estate News

Tenant’s Right to Manage – A damp squib?

As the number of people in privately rented accommodation increases, the ability of tenants to manage their homes in a way that works for them is becoming increasingly important.  The Right to Manage (“RTM”), which landlords cannot contract out of, was introduced to give tenants of flats more control if they are dissatisfied with the way a landlord or property manager is managing the services in their building.

How does it work?

Under the Commonhold and Leasehold Reform Act 2002, the RTM applies to premises that:

• consist of a self-contained building or part of a building;

• contain two or more flats held by qualifying tenants; and where

• the total number of flats held by qualifying tenants is not less than 2/3 of the total number of flats in the premises.

Qualifying tenants are those who have long leases of 21 years or more from the date of grant.

Certain premises are excluded from the RTM.  They include premises owned by local housing authorities and buildings where more than 25% of the internal floor area (excluding common parts) is non-residential .

The RTM must be exercised through a private company limited by guarantee set up by the qualifying tenants (the “RTM Company”), which must give notice to each qualifying tenant inviting them to participate in the RTM.  The RTM Company then has to serve a claim notice on anybody who is:

• a landlord under a lease of the whole or any part of the premises;

• any party to those leases that is not a landlord or a tenant; and

• a manager appointed (under Part II of the Landlord and Tenant Act 1987) to act in relation to the premises or any part of them.

On the date that the claim notice is given, the number of qualifying tenants that are members of the RTM Company must be at least half of the total number of flats in the premises.  If a person given a claim notice disagrees that the RTM Company is eligible to acquire the RTM, it will need to serve a counter-notice; the RTM Company may then apply to a tribunal for determination of its right.

If the RTM Company acquires a RTM of the premises, it will assume management functions in relation to services, repairs, maintenance, improvements, insurance and management. This excludes landlord functions in respect of re-entry or forfeiture and matters relating only to flats not held by qualifying tenants.

Worthwhile?  Possibly not.

For a group of tenants willing to act together and with the right skillset, this can be a great way to ensure quality management of shared areas and services and expenditure on services that are important to them. However, the Law Commission has commented that take up is limited and those who have done so “have found delays, costs and uncertainty” in the statutory process for acquiring the RTM.  Stumbling blocks identified include the prescribed form of notices, difficulties in managing additional parts of properties used by others (e.g. access roads) and the inability for one RTM Company to manage multiple blocks on the same estate.  At a time when mixed use development and redevelopments are finding favour (with residential development above retail and leisure assets, for example) it is arguable that the exclusion of buildings with more than 25% of commercial space deprives an increasing number of flat tenants of the right to manage their building.

Given these problems, it might be unsurprising that the take up of the RTM scheme has been slow since 2002. However, with the Law Commission looking to publish a consultation paper by the end of 2018 with a view to “making the procedure simpler, quicker and more flexible”, it may well be that landlords will face more RTM claims in the future.

 

Posted in Real Estate News

Structures and Buildings Allowance: What a relief for construction costs

Whilst capital allowances have been available for plant and machinery that forms an integral part of buildings, there has been no relief available for the capital investment to construct most structures or buildings themselves.

Until now…

The Chancellor announced in the 2018 Budget that the government will introduce a new Structures and Buildings Allowance (“SBA“) for new non-residential structures and buildings.

Relief will be provided on eligible construction costs incurred on or after 29 October 2018, at an annual rate of two percent on a straight-line basis over a 50 year period once the building comes into use.

The key features of the relief are that:

  1. relief will be given at a flat rate of two percent over a 50-year period;
  2. relief will be available for new commercial structures and buildings, including costs for new conversions or renovations;
  3. relief is available for UK and overseas structures and buildings, where the business is within the charge to UK tax;
  4. relief will be limited to the costs of physically constructing the structure or building, including costs of demolition or land alterations necessary for construction, and direct costs required to bring the asset into existence;
  5. relief is available for eligible expenditure incurred where all the contracts for the physical construction works were entered into on or after 29 October 2018;
  6. claims can only be made from when a structure or building first comes into use;
  7. land costs or rights over land will not be eligible for relief, nor will the costs of obtaining planning permission;
  8. the claimant must have an interest in the land on which the structure or building is constructed;
  9. dwelling houses will not qualify, nor any part of a building used as a dwelling where the remainder of the building is commercial;
  10. sale of the asset will not result in a balancing adjustment – instead, the purchaser takes over the remainder of the allowances written down over the remaining part of the 50-year period;
  11. expenditure on integral features and fittings of a structure or building that are currently allowable as expenditure on plant and machinery, will continue to qualify for writing down allowances for plant and machinery including the Annual Investment Allowance (“AIA“) up to its annual limit;
  12. SBA expenditure will not qualify for the AIA; and
  13. where a structure or building is renovated or converted so that it becomes a qualifying asset, the expenditure will qualify for a separate two percent relief over the next 50 years.

As the allowance will pass to a buyer of the new commercial building, the amount of available relief will need to be disclosed by the seller. Buyers of new commercial buildings will need to raise this issue in pre-contract enquiries.

For further details please click here.

Posted in Real Estate News

SDLT: same tax; different filing window

From 1 March 2019 the window to file a Stamp Duty Land Tax (“SDLT”) return, and pay any SDLT due, will reduce from 30 days to 14 days from the effective date of the transaction.

As a reminder, generally the “effective date” is the date of completion. However, where a contract for the sale of land or (for example) an agreement for lease is “substantially performed” before completion, the effective date is the date of that substantial performance.  Examples of substantial performance include where a purchaser takes possession of the property, or pays the majority of the consideration for the transaction, before completion.

The reduced filing window will apply to all transactions with an effective date on or after 1 March 2019. Businesses and lawyers will need to ensure that internal processes are updated in line with this change to avoid late filings.

HMRC’s objective with the reduced window is to improve efficiency in the SDLT system. For more information about their rationale for the changes please click here.  As we blogged in 2016 when HMRC originally consulted in relation to the proposed change, we felt that substantial simplification of the forms and of the amount of information required would need to be undertaken in order to mitigate the risk of late filings under the new regime. In our experience, the process of preparing the forms to report complex commercial transactions can be extremely time-consuming.

HMRC are now consulting on the proposed changes to the return and, this week, have published draft legislation including the reduced number of questions. There is a helpful reduction in the amount of information which now needs to be supplied, particularly in relation to new leases granted and occupational leases to which a property is subject.  HMRC assert that there will be “no significant impact on business, charities or voluntary bodies […as the…] majority of returns are already filed within 14 days of the transaction”. However, SDLT remains a complicated tax and in time-pressured transactions it is now going to be even more important for all involved to engage at an early stage with the approval of the significant amount of information which still needs to be included on the returns.

For more information about the changes to the forms, or to take part in the consultation, please click here.  The consultation closes at 11:45pm on 23 November 2018.

 

 

 

Posted in Real Estate News

New Guidance paves the way for more Build to Rent

What’s happened?

The Government has issued new guidance to help councils grant planning permission for Build to Rent schemes. This is great news for Build to Rent developers as it should mean that permissions are granted more quickly. Councils are encouraged to plan for Build to Rent in their areas where a need is identified, which should mean that more Build to Rent permissions are granted in the future.

Why?

The Government has recognised the significant role that Build to Rent has to play in solving Britain’s housing crisis. As a relatively new type of housing, the Government is trying to provide a national framework for Build to Rent housing and to provide clarity to councils who want to plan for and grant permission for Build to Rent schemes.

What kind of affordable housing?

A discount of at least 20% off market rent should be applied to the affordable units at the point the tenancy is entered into or renewed. The affordable units should be in place for the life of the scheme. The guidance tells councils how to deal with the possibility of units being sold off as build for sale units. This may include the provision of alternative types of affordable housing or a “clawback” contribution. The guidance provides a potential formula to help councils with this.

Other types of affordable housing (including financial contributions) can be provided, but this will require specific agreement with the council. Like the market rent homes, the affordable units should be under common management, be distributed throughout the scheme and be indistinguishable from the market rent homes.

How much?

The guidance suggests that 20% of the Build to Rent units should be affordable. However, councils are free to set their own required proportion in their local plan, based on their local housing needs.

The Mayor of London has done just this in his draft London Plan. For Build to Rent schemes to follow the Fast Track Route (avoiding the need for an open-book viability assessment) they must deliver at least 35% affordable housing and at least 30% of the affordable units must be rented at or below the London Living Rent.

The guidance allows some flexibility for developers as it recognises that viability issues may mean that developers need to make a case for fewer affordable units. There is also flexibility in terms of the spread of discount across the site. This might involve a trade-off between the proportion of discounted units and the discount offered on them – another win for developers.

Management

The process for managing affordable rented units should be set out in the section 106 agreement with the affordable units under the same management as the market rent units. The agreement should specify:

  • the lettings agreement parameters;
  • rent levels;
  • spread of homes across the scheme;
  • management and service agreement; and
  • marketing arrangements.

The scheme operator may be asked to produce an annual statement to the council to show compliance with the planning agreement.

The guidance does not prescribe a covenant period during which homes must remain as rentals, but suggests that councils should consider setting one. Potential compensation mechanisms are suggested in the event that homes are sold off during the covenant period.

Giving Build to Rent a boost

All in all, this is good news for the Build to Rent sector. There continues to be clear support for Build to Rent and the guidance provides structure and detail to the planning process. This should help to demystify councils and inject confidence and trust in the sector. What is crucial, now, is that the flexibility within the guidance is respected and that communication between councils and developers is maintained to build on the steady foundations of the new planning policy and guidance.

Posted in Real Estate News

Enforcement action for arrears – a useful reminder for landlords


Although company voluntary arrangements have stolen the headlines this year, there are many other tenants, particularly those in the retail sector that are not seeking to reduce their rents but simply falling into arrears.  This presents a significant headache for landlords trying to manage their property portfolios.

There are a number of remedies available to landlords who find themselves in this situation including:

• Forfeiture: A right to forfeit is invariably found in commercial leases and provides a landlord with the ability to bring a lease to an end upon the tenant’s default.  In the case of non-payment of rent, a landlord can exercise its right to forfeit without notice to the tenant.

• Commercial Rent Arrears Recovery regime: CRAR is a statutory regime which allows a landlord of commercial premises to recover rent arrears by taking control of a tenant’s goods at the leased premises and, if the arrears are not paid, selling them.  CRAR requires notice to be given to the tenant and a certified enforcement agent needs to be engaged to attend the premises to take control of the goods.

However, landlords need to be careful how they pick and choose these remedies as otherwise they risk prejudicing their own position.  The recent case of Thirunavukkrasu v Brar & Brar [2018] EWHC 2461 (Ch) serves as a useful reminder that before taking any enforcement action against a tenant for arrears, landlords should first consider whether their priority is to get paid or get the premises back.

In the case, Thirunavukkrasu was the tenant of premises in Teddington, Middlesex and the Brars were the landlord.  The rent was due quarterly and the tenant had failed to pay the December 2015 quarter’s rent.  The landlords decided to exercise CRAR on 1 February 2016 and subsequently purported to exercise their right to forfeit for non-payment of rent on 12 February 2016.  One of the issues before the County Court, which was then considered by the High Court on appeal, was whether exercising CRAR waived the right to forfeit.

A landlord can waive a right to forfeit for a “once and for all breach” (like not paying rent on the due date) by unequivocally confirming the existence of the lease and communicating this to the tenant.  The County Court and subsequently the High Court held that exercising CRAR amounted to a waiver of the right to forfeit.  In the judge’s words, the “exercise of CRAR… contained an unequivocal representation that the lease was continuing”.  Therefore the forfeiture of the lease was unlawful.

This decision serves as a useful reminder for landlords when faced with a tenant in arrears. Exercising one form of enforcement action may scupper their ability to take other steps at a later date.

Whenever a landlord is considering forfeiting a lease, it is important to obtain advice on how best to proceed.  As the case of Thirunavukkrasu demonstrates, a mistake can lead to a lengthy and expensive legal dispute, which all landlords would rather avoid.