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Keeping It Real Estate

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

Posted in Real Estate News

A Leap Day Bonus

Wishing you a Happy Leap Day for tomorrow! Traditionally the day for women to issue marriage proposals, 29 February may also have an unexpected consequence for buyers and sellers of commercial properties when they work out their completion statements.

The Standard Commercial Property Conditions are a set of standard conditions which are incorporated (to a greater or lesser extent) into most commercial sale contracts.  Under the Standard Conditions, when instalments of annual sums, such as rent, are apportioned the buyer is attributed with an amount equal to 1/365th of the annual sum for each day.  This is true whether there are 365 days or 366 days in the year.For the number of days in a year to make a significant difference the rent has to be fairly high, which is probably why the Standard Conditions don’t attempt to distinguish between normal years and leap years.  However it is not inconceivable that the anomaly could have a noticeable impact for high income producing properties where completion occurs shortly after a quarter day in 2020.  For example the sale of a property producing an annual rent of £10,000,000 completes on 1 April so the buyer is entitled to 85 days’ rent.  In a 365 day year the daily rent will be £27,397, but in a leap year the daily rent is £27,322.  Under the Standard Conditions, the buyer will be entitled to £6,375 more than it would be if the actual daily rent was used to calculate its apportionment.

The buyer will also receive a leap year bonus where a seller has agreed to provide rent top ups or rent guarantees as part of a sale and the buyer is entitled to a period which includes 29 February.  For example a sale completed on 1 February and there is a rent free period until 1 March when the property will produce an annual rent of £10,000,000.  In a normal year the buyer would be entitled to 28 days at a daily rate of £27,397.  In 2020 the buyer is entitled to 29 days at a daily rate of £27,322.  The difference is an extra £25,222 due to the buyer.

So in 2020:

  • The buyer will get a leap year bonus where he is entitled to an apportionment of the rent paid by tenants for the property as a denominator of 365 produces a slightly higher daily rate.
  • The buyer will also get a leap year bonus where the buyer is entitled to income for 29 February and the seller has agreed to guarantee or top up the rent.
  • The seller will get a leap year bonus where rent is paid for the property to a superior landlord.

Where the rent in question is significant, astute buyers and sellers may therefore want to vary the Standard Conditions to correct the leap year peculiarity.  Similarly where top ups and rent guarantees are involved, actual daily rents should be calculated and agreed between the parties.

 

Posted in Real Estate News

MEES and residential property – don’t be a fool come 1 April 2020

Come April Fool’s Day 2020, landlords of residential property should be aware not just of customary pranks and hoaxes, but also of the implications of the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (the “MEES Regulations“).

What is the current position for residential property?

Since 1 April 2018, landlords of “domestic private rented property” are unable to grant or renew leases without a valid EPC with a minimum rating of E.

Currently, F and G rated properties are “sub-standard” under the MEES Regulations.

The MEES Regulations do not apply to all residential property. There are excluded types of property, excluded types of landlord, qualifying types of tenancy and the property must be required to have an EPC in the first place. We have blogged previously on the residential property that is not affected.

What will change from 1 April 2020?

From and including 1 April 2020 landlords will be prohibited from continuing to let sub-standard domestic private rented property. This will apply to leases granted before or after 1 April 2018.

This is slightly different to the position for landlords of commercial property, where the prohibition on continuing to let sub-standard property will come into effect on 1 April 2023.

What options do landlords of sub-standard property have?

Before 1 April 2020, landlords of sub-standard domestic private rented property must:

  1. make sufficient energy improvements to the property to ensure it is no longer sub-standard; or
  2. make all relevant energy efficiency improvements to the property and, if the property continues to be sub-standard, register this information on the PRS Exemptions Register (or, where there are no relevant energy efficiency improvements that can be made to the property, register this information on the PRS Exemptions Register). There are qualifying criteria for what is a “relevant” improvement; or
  3. register an exemption under the MEES Regulations on the PRS Exemptions Register.

If either of the last two points apply, landlords can continue to let sub-standard property for a period of five years.

What are the exemptions?

The main exemptions are:

  1. The “high cost exemption” – the cost of purchasing and installing the cheapest recommended improvement exceeds £3,500 (inclusive of VAT). This exemption can only be used where there are no improvements that can be made for £3,500 or less.
  2. The “consent exemption” – a landlord can demonstrate that it has been unable to obtain necessary third party consent for any energy efficiency works.
  3. The “devaluation exemption” – the works would reduce the market value of the property by more than 5%.
  4. A “temporary exemption” – if a person becomes a landlord suddenly in a limited set of circumstances (for example, a lease is deemed by operation of law to have been created), this exemption allows a grace period of six months for the landlord either to carry out improvements so the property is no longer sub-standard or to register another valid exemption. From 1 April 2020, this exemption will also apply where a person becomes the landlord on purchasing an interest in a sub-standard property that, on the date of the purchase, was let on an existing tenancy.

Otherwise, if landlords are continuing to let sub-standard domestic private rented property, they will be in breach of the MEES regulations.

What does it mean if I’m in breach?

Whilst a lease of sub-standard domestic private rented property will continue to be valid and enforceable if it continues on or after 1 April 2020, landlords could face enforcement action by local authorities. This could lead to financial penalties and negative publicity (both of which could be damaging).

As 1 April 2020 draws closer, it is essential that residential landlords are proactive in reviewing their portfolios to identify sub-standard properties and to take appropriate action. Failure to do so will be no laughing matter.

Posted in Real Estate News

Private Property? Court of Appeal says that being overlooked is not a nuisance

The Court of Appeal has handed down judgment in the case of Fearn & Others v The Board of Trustees of the Tate Gallery, concerning a dispute between the Tate Modern gallery and its residential neighbours over the Tate’s public viewing platform.

The Court of Appeal, in dismissing the appeal has confirmed that “mere overlooking” is not capable of giving rise to a private nuisance.

Background to the dispute

A legal nuisance is usually caused by someone doing something on their land which interferes with the use of neighbouring land.

Fearn and other residential neighbours of the Tate Modern bought flats on London’s South Bank, in what the Court of Appeal described as “a striking modern development“.

At around the same time, the Tate Modern was constructing an extension including a large viewing platform which provided, in the words of the Court of Appeal “a striking view of London to the north, west, and east, with a less interesting view to the south“.

Unfortunately for the residents, visitors to the Tate Modern began to take photographs and “view the claimants and their flats with binoculars“.  This resulted in Fearn and the other residents seeking an injunction against the Tate Modern to prevent this overlooking, which they considered amounted to a legally actionable nuisance.

Decision

At first instance in the High Court (see our previous blog), the judge concluded that there was no actionable nuisance.

The residents promptly appealed.  Unfortunately for the residents, the Court of Appeal agreed with the High Court and dismissed the appeal.  However, the Court of Appeal disagreed with the High Court’s reasoning:

  • The Court of Appeal, having undertaken a detailed review of the relevant case law, concluded that “the overwhelming weight of judicial authority… is that mere overlooking is not capable of giving rise to a cause of action in private nuisance“.
  • The High Court considered that floor-to-ceiling glass windows meant that the residents had submitted themselves to a “self-induced exposure to the outside world” and that they could “install net curtains“. The Court of Appeal was critical of this.  It noted that there was no suggestion that the residents were using the flats “otherwise than in a perfectly normal fashion“, and it is not usually a defence to nuisance to say that the person suffering it could take steps to minimise the effects on them.

As the appeal has been dismissed, and leave to appeal to the Supreme Court has been refused, the residents will, it seems, have to put up with being overlooked by visitors to the Tate Modern.  This may appear unfair given that the overlooking in question is clearly an annoyance to them.  However, the Court of Appeal did point out that “even in modern times the law does not always provide a remedy for every annoyance to a neighbour, however considerable that annoyance may be” and that further laws on this matter are rightly a matter for Parliament.

Fearn & Others v The Board of Trustees of the Tate Gallery [2020] EWCA Civ 104

Posted in Real Estate News

Noisy works: a useful reminder for landlords

When a landlord is carrying out works it is usually impossible to avoid some level of disturbance to tenants.  On that basis, previous case law has made clear that a landlord carrying out works will need to take “all reasonable steps to minimise the disturbance” to its tenants in order to avoid a tenant successfully claiming damages for breach of the landlord’s quiet enjoyment covenant.

The recent decision in Jafari v Tareem Limited, an appeal to the High Court from the County Court, is a useful reminder of what a landlord needs to consider when carrying out noisy works.

Background

Dr Jafari, the tenant, operated a dental surgery from premises in Brighton.  Dr Jafari’s landlord was Tareem Limited.  Dr Jafari’s premises formed part of a large office block which Tareem had decided to convert from office to hotel use.

The conversion works commenced in April 2012 and did not complete until the end of 2013.  Crucially, for the period of the works Tareem waived Dr Jafari’s rent in full (amounting to seven quarters’ rent); however, Dr Jafari did not consider this waiver of rent to be adequate and sought to withhold further rental payments after completion of the works.  Dr Jafari complained that:

  • for most of this period scaffolding was erected;
  • noisy works were carried out outside of the agreed restricted hours;
  • replacement of the windows to Dr Jafaris’s premises, which was meant to be carried out as part of the redevelopment, was not carried out; and
  • the works resulted in a significant downturn in profitability for Dr Jafari’s surgery.

County Court decision

The judge found that the landlord’s works had not caused the downturn in profitability and that the breaches of the agreed restricted hours had been occasional only.

Further, although the judge found that “no consideration was given to the design of the scaffolding so as to minimise the disruption to Dr Jafari“, the judge considered that, by providing “generous financial compensation“, Tareem had taken all reasonable steps to minimise the disturbance to Dr Jafari, save that Dr Jafari should be entitled to damages for Tareem’s failure to replace the windows.

Dr Jafari was required to pay the overdue rent.

Appeal to the High Court

Dr Jafari appealed to the High Court on a number of grounds, one of which was that the county court judge should not have taken account of the rent waiver when considering the reasonableness of Tareem’s conduct.

Dr Jafari argued that compensation should only be taken into account, when assessing the landlord’s reasonableness, where the lease contained a right for the landlord to carry out works (e.g. a right to build), which Dr Jafari’s lease did not.

In refusing Dr Jafari’s appeal, the High Court concluded that the judge at first instance was right to take into account the rent waiver as an element to “throw into the balance of reasonableness” when considering whether a landlord had taken all reasonable steps to minimise disruption, and the fact that Dr Jafari’s lease did not contain an express right to build was not determinative.

What does this mean?

The important point for landlords to note is that this case reinforces that an early offer of compensation, in the form of a rent rebate or otherwise, is likely to be viewed favourably by a court when considering whether a tenant is entitled to damages for breach of a quiet enjoyment covenant resulting from a landlord’s works.

Jafari v Tareem Limited [2019] EWHC 3119 (Ch)

Posted in Real Estate

Should all boundary disputes be settled by surveyors?

Believe it or not, lawyers do not love boundary disputes. Costly and protracted litigation over small parcels of land is rarely in the client’s best interests, especially if (as is often the case) the dispute is not really about the land itself but some breakdown in neighbourly relations. These antagonisms are usually worsened by court proceedings, whoever wins.

Surely then we should rejoice the fact that the much-delayed Property Boundaries (Resolution of Disputes) Bill is finally making its way through Parliament. Not so, says the Property Litigation Association (PLA), which represents property litigation solicitors across the UK.

The private members’ bill, sponsored by the Earl of Lytton, seeks to supplant the current court process with mandatory expert determination by a surveyor, utilising a similar approach to the Party Wall etc Act 1996. It was introduced in the House of Commons in 2012 and, after several false starts, had its first reading in the House of Lords on 15 January this year.

The bill provides that where a dispute arises over the location of a boundary or right of way, the parties must appoint a surveyor to make a determination based on the physical characteristics of the land. The expert would have a right to enter the land and refusal to co-operate would be a criminal offence. Subject only to a High Court appeal, the expert’s award would be conclusive.

It is true that the courts are not always the best place to resolve boundary disputes, but this is not the right solution.

Boundary disputes are often not just about measurements and plans but involve the interpretation of conveyances and other legal documents, as well as complex areas of law such as adverse possession and acquiring rights of way by prescription. That is work that is better suited to legal professionals.

It is also questionable whether parties should be forced to forgo their legal right to a fair trial – there will, after all, be cases where the value of the disputed land justifies using the courts or First-tier Tribunal. Unlike the Party Wall Act, the bill does not confer rights but takes them away.

A better route would be to encourage consensual methods of alternative dispute resolution like mediation, whether the mediator is a surveyor or a lawyer, or use of the PLA-approved boundary disputes protocol found at www.propertyprotocols.co.uk.

This article has also appeared in Property Week (07.02.2020)

Posted in Real Estate

Brexit FAQs

What does 31 January really mean?  How does the transition impact my business? Are there legal and regulatory changes from next week? Look at our FAQs to find out …

This FAQs document provides a brief overview of the impact of Brexit on your business on 31 January 2020 and beyond.

On 31 January 2020, the UK will formally leave the European Union, after over 40 years of membership. The UK’s relationship with the EU will no longer be governed by the EU Treaties, but instead by the terms of the Withdrawal Agreement agreed between the UK and the EU in late 2019. Following that agreement, the UK will be in a “transition” period, which commences the moment the UK leaves the EU and is currently set to end on 31 December 2020.

Under the terms of the transition, most EU law continues to apply to the UK and in the UK and continues to be interpreted and applied as if the UK were still an EU Member State. This means that during the transition period, from the perspective of business not much will change in terms of the UK’s relationship with the EU. For many, it will feel as if the UK has not left.

But the UK will have left the EU. At the end of the transition period, currently 31 December 2020, there are likely to be significant changes to the UK’s business environment.

During the transition period itself, the UK will no longer participate in EU governance and decision-making and will instead focus in 2020 on the negotiations relating to its future relationship with the EU, which the UK Government hopes to have in place by the end of the year. Many believe this to be an extremely demanding timetable, but the UK Government insists it will not request an extension to the transition period under any circumstances. The UK will also continue engaging with the negotiations with other countries, including replacing various EU free trade agreements by the end of the transition period.

It is vital that businesses monitor the negotiations closely and remain engaged with the process. The decisions that will be taken during the course of the negotiations will impact the shape of the UK economy for years to come. We, Hogan Lovells, are uniquely placed to help our clients over the coming months to prepare for the various potential outcomes.

For more information or support on any aspect of your Brexit projects, please contact one of our Brexit Taskforce, of which Jackie and Hannah are both members, or email Brexit@HoganLovells.com.

Posted in Real Estate News

Coming soon: New electrical safety standards for PRS landlords

New draft Electrical Safety Regulations have been laid before Parliament but what do they mean for landlords in the private rented sector?

When and where will they apply?

If passed, these regulations will apply in England to most new residential tenancies from 1 July 2020 and all existing residential tenancies from 1 April 2021.

They will apply to premises let to one or more people who are occupying the premises as their only or main residence and paying rent. This means that they won’t capture holiday lets and second homes.

However, certain tenancies are excluded, including tenancies granted by social landlords, long leases or tenancies granted for a term of seven years or more, student housing, and tenancies of hostels, refuges, care homes, hospitals or hospices.

What will be required?

Under the draft regulations, private landlords will be required to carry out checks and ensure that their electrical installations comply with requisite electrical safety standards.  These are set out in the 2018 edition of the IET Wiring Regulations.

The electrical installations must be tested and reported on by a qualified person.  The first test must be carried out before a new tenancy starts or by 1 April 2021 where the tenancy is already in place.  Further testing must then be done every five years.

Landlords must give the report to existing tenants within 28 days of the inspection.  New tenants must receive a copy before they occupy the premises. In addition, where a local housing authority requests it, the report must be supplied to them within seven days.

How long do I have to complete any remedial works required?

If the report states that remedial works are required, the landlord must carry out such works within 28 days of the inspection (or sooner, if indicated by the report). The landlord must then confirm to the tenants and the local housing authority that the remedial works have been done.

If the landlord fails to carry out remedial works within the specified time period, the local housing authority will be able to carry out the works itself and recover costs from the landlord. Where non-urgent remedial works are required, the local housing authority must have served a remedial notice on the landlord giving the landlord an opportunity to carry out the works (within 28 days) before it does them itself.

What are the consequences for non-compliance?

As well as having the power to complete works themselves, the local housing authority will be able to impose a financial penalty on landlords for breach of their obligations, up to a maximum of £30,000.

Ouch! Sounds expensive.

It certainly could be as electrical installations fitted prior to the publication of the 2018 edition of the electrical safety standard may not comply with the new standard and there is a very small window of opportunity in which to carry out any remedial works.   This could prove to be yet another thorny issue for PRS landlords to get to grips with.

Posted in Real Estate

Interim Code rights – the Telecommunications Infrastructure (Leasehold Property) Bill

What are interim Code rights?

Operators have been having issues in relation to non-responsive owners of multi-let buildings where the Operator’s customer occupies part of the building as a tenant. This means that there is often a delay in the tenant of those multi-let buildings getting internet services.

In order to tackle this issue the government has published the Telecommunications Infrastructure (Leasehold Property) Bill.  This Bill was published before the general election and has now been carried over into the new Parliament.  At the time of writing, the Bill is in the House of Commons. When enacted it will permit the court to make an order to grant interim Code rights (under the Electronic Communications Code) for leasehold premises relatively quickly where:

(a) the rights are required in respect of land which is connected to the leased premises; and

(b) the land owner or other person with an interest in the land has not responded to repeated notices given by the Operator seeking an agreement.

This will be known as a “Part 4A Order”.

What’s the process?

The Operator makes a request to the land owner for a Code agreement (“Request Notice”). Following the request there are provisions for two warning notices and a final notice.

The warning notices must be in writing and they must:

(a) include a copy of the Request Notice;

(b) state which notice it is e.g. first, second or third of three notices; and

(c) explain the effect of a Part 4A order.

What are the timings?

Notice Timing
First Warning Notice Seven days following the date that the Request Notice was served.
Second Warning Notice Seven days following the date that the first warning notice was served.
Final Notice Within the “Permitted Period” which is the later of:

i) the period of seven days beginning with the day on which the second warning notice was given; and

ii) the period of 28 days beginning with the day on which the Request Notice was given; and

ends at the end of the period of 28 days beginning with the day on which the second warning notice was given.

If the land owner doesn’t respond to the Operator and 14 days have passed since the final notice was given, the Operator can apply to court for the Part 4A Order.

The Operator must then give the landowner notice that he/she has applied to the court.

What happens next?

The court may grant the Order if the requirements set out above have been met and the land owner hasn’t responded to the Operator.

Once granted the Part 4A Order will grant the Operator the Code rights specified in the request and the Operator will be permitted to install the electronic communications apparatus for the benefit of the tenant.

Do the rights expire?

Yes, Part 4A Code rights expire when:

(a) a replacement agreement comes into effect;

(b) the court refuses an application by the Operator for the imposition of a replacement agreement, in accordance with that decision; or

(c) a period of no more than 18 months has passed following the grant of a Part 4A Order.

What are the implications of the interim Code rights?

The Operator may be given Code rights to install electronic communications apparatus in premises without the consent of the land owner.

What do you do if you receive any notice from an Operator?

Acknowledge the request as soon as possible and seek professional advice. Once an acknowledgment has been made the Operator cannot apply for a Part 4A Order.

Posted in Real Estate News

Don’t take it personally: Is the benefit of an agreement for lease personal to the landlord?

In Bella Italia Restaurants Limited v Stane Park Limited, Bella Italia had entered into a conditional agreement for lease with its prospective landlord, the Trustees of the Churchmanor Pension Scheme.

As you would expect, the agreement contained a right for the landlord to grant a lease, on the terms agreed, with a corresponding obligation on the tenant to accept this lease.

The Trustees then sold the property to Ropemaker. In the sale contract, the property was sold with the benefit of the agreement for lease and Ropemaker covenanted to comply with the Trustee’s obligations.

Bella Italia later attempted to terminate the agreement for lease on the grounds that the right to grant the lease was personal to the Trustees and that it was entitled to refuse to accept a lease from a new landlord. The Trustees refused and Bella brought proceedings for a declaration that the agreement was terminated.

The judge had to consider whether the right was personal to the Trustees, or whether Ropemaker was entitled to enforce completion of the lease under the agreement.

As a matter of contractual interpretation, it was found that the right was not personal to the Trustees and could be assigned.

The judge noted that a large number of provisions in the agreement were expressed to be personal to the parties. For example, the agreement stated that the benefit of the agreement was non-assignable by the tenant. The judge ruled that the absence of any equivalent provision in relation to the landlord was evidence that the parties did not intend any such restriction.

The fact that the landlord was defined in the agreement as the Trustees did not prevent assignment of the benefit to a new landlord. If the definitions had such effect, it would render redundant any provision in the agreement expressing an obligation to be personal.

The draft lease, attached to the agreement for lease, also stated that references to the landlord included its successors in title. This was further evidence that the agreement was not intended to be personal to the Trustees.

Ropemaker was therefore entitled to a declaration that the agreement was not validly terminated and that Bella Italia was liable to complete the lease offered by Ropemaker or be in breach.

This is an important reminder of the basic legal principle of the “freedom to contract”. Parties are, generally, entitled to assign their benefits or rights under a contract unless expressly stated otherwise. It is important fully to understand what you and the other side are entitled to do and, when it comes to an agreement for lease or any other contract, ensure that any intended restrictions on assignment are expressly incorporated.

Posted in Real Estate News, Uncategorised

Unleashing real estate’s potential: what follows next?

The real estate sector will welcome the stability, at least in the short term, that such a decisive election result brings. Jackie Newstead, our Global Head of Real Estate, predicts a post-election bounce in investment following a return of confidence to the market and a busy Q1 in 2020.  Deals which were on ice can be resurrected and pent-up investment unleashed.  So, what key policies lie in store for the real estate sector?

Brexit

One thing is clear:  Brexit will be a top priority.  The government has promised to start pushing the deal through Parliament before Christmas and leave the European Union in January 2020.  But there are many hurdles still to cross.  Not least is finalising a new trade agreement before the implementation period runs out at the end of December 2020.

Retail

The nose dip in retail values has reflected the increasingly broken high street. Vacancies have hit their highest rates since 2015, with more than one in ten shops sitting empty.  Retail insolvencies are at a five year high, up more than 30% compared to the year before the Brexit referendum.

There is a glimmer of hope at least in the fact that it was a Conservative manifesto pledge to overhaul business rates to help revive the high street.  But for those retailers, restaurants and leisure outlets struggling with waning consumer confidence and a squeeze on discretionary spend, an end to Brexit uncertainty can’t come soon enough.

Housing

The Conservatives have promised a million homes in the next five years with affordable housing high on the agenda.  Boris Johnson will encourage councils to use planning contributions to discount homes by a third and will produce a social housing white paper outlining further reform.

Leasehold reform

The Conservatives are committed to continuing their programme of leasehold reform including a ban on the sale of new leasehold houses, restricting ground rents to a peppercorn and strengthening consumer redress for tenants.

Private rented sector

The government will repeal section 21 of the Housing Act 1988 and effectively end the assured shorthold tenancy regime and so called “no fault evictions”.  This means that landlords will only be able to obtain possession of their property in specific circumstances and not automatically at the end of the term.  In compensation the government would strengthen rights of possession for landlords.  Also on the agenda is a commitment to one “lifetime” deposit which moves with the tenant.

Overseas investment 

A stamp duty surcharge on non-UK resident buyers will be introduced.  This will apply to companies as well as individuals.  The 3% charge has been increased during the election campaign from the 1% originally suggested.  Further detail on this will be awaited with interest.

Another five years

With some pertinent proposals and a personal guarantee to get Brexit done in January it will be interesting to see just what gets unleashed in the months and years to come and how the real estate sector responds.

Although we now have a clearer road-map of the future and anticipate a return of confidence to the market, the post-election feel good factor may be short-lived if the Conservatives can’t negotiate a trade deal by the end of December 2020 in which case we may be facing another cliff edge this time next year.

Click here to see more information on what happens next.