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Keeping It Real Estate

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

Posted in Real Estate

Podcast: Can Brexit frustrate a lease?

London Real Estate Associate Ben Willis discusses the key practical points you need to know about Brexit and contractual termination and force majeure provisions following the High Court’s judgment in the closely watched case of Canary Wharf (BP4) T1 Limited and others v European Medicines Agency, which found that the European Medicines Agency remains bound by the terms of its lease of its London offices, notwithstanding Brexit.  The EMA has appealed.

Listen to our podcast here

Our Brexit Hub contains all our thought leadership across practices, sectors and jurisdictions to help you navigate Brexit’s impact on your business.

Find out more here

 

 

Posted in Real Estate News

The end of the road for Right to Rent?

The High Court has held that right to rent checks cause discrimination on grounds of race and nationality and breach the Human Rights Act. In his judgment released today, Mr Justice Martin Spencer said that the scheme could not be justified as “the measures have a disproportionately discriminatory effect”.  He concluded that the “nail in the coffin” for the scheme is that, on the evidence, “the scheme has had little or no effect” in tackling illegal residence.  Any further roll-out of the scheme would be “irrational … given that … there is little or no evidence of efficacy in relation to the scheme and convincing evidence that [it] causes landlords to behave in a discriminatory way.”

The right to rent requirements were introduced in England in February 2016 under the 2014 Immigration Act, but have not yet been implemented in Scotland, Wales or Northern Ireland.

As we reported last summer, a charity called the Joint Council for the Welfare of Immigrants was granted permission to challenge the right to rent measures before further rollout to the rest of the UK.

Under the right to rent scheme, all private landlords must check the immigration status of a tenant or lodger to ensure they can legally rent a residential property in England. The policy also affects commercial landlords if, for example, they let residential flats over retail units.

The checks must be carried out before the start of a tenancy, on all people aged 18 or over who will live at the property as their main home, whether they are named in the tenancy agreement or not. Certain types of property, such as social housing, some student accommodation and leases of seven years or more of any residential property, are exempt. Although a landlord has freedom of choice over its tenant, a fear of falling foul of the scheme was making many landlords less willing to rent to those without a British passport.

Under the right to rent regime, a contravention of the right to rent requirements can result in a fine of up to £3000 but if landlords knowingly rent out their property to an illegal immigrant, or have reasonable cause to believe that the tenant has no legal right to remain in the UK, this amounts to a criminal offence which can attract an unlimited fine and up to five years in prison.

A landlord may have a defence where it takes reasonable steps to terminate the tenancy within a reasonable time of becoming aware of the true immigration status of the tenant, but the process of termination and possibly eviction is daunting even though the Immigration Act 2016 introduced provisions making it easier to evict illegal immigrants.

Landlords can pass on responsibility for rent checks onto letting agents, but this has to be clearly agreed as part of the landlord’s contract with the agent.

The Home Office has been granted leave to appeal, so how this pans out in practice remains to be seen, but it looks like right to rent is on its way out.

Posted in Real Estate News

Question: Is an invasion of privacy a legal nuisance?

Answer: Those who live in glass houses should not throw stones (or complain about prying neighbours)

The recent case of Fearn & Others v The Board of Trustees of the Tate Gallery [2019], concerned a dispute between the Tate Modern and its residential neighbours over the Tate’s public viewing platform. The case makes clear that an invasion of privacy can (although not in this case) amount to an actionable legal nuisance.

The dispute

In central London, where many live cheek by jowl, privacy is a scarce commodity. Residential areas are increasingly seeing high-rise blocks, with mainly glass exteriors, nestled in close proximity.

The complainants in this case had bought their flats, which neighboured the Tate Modern on London’s South Bank, in or around 2013. At the same time, the Tate Modern was constructing its extension which included a large viewing gallery with spectacular views of London. For some residents, the viewing gallery also provided a view of their living rooms and “winter gardens“. This resulted in visitors to the Tate Modern staring at the residents, sometimes through binoculars, taking photographs and (allegedly) making obscene hand gestures.

Eventually, some of the residents decided to seek an injunction against the Tate Modern requiring the Tate Modern to prevent members of the public invading their privacy by “observing” them from the viewing platform.

The arguments

The residents sought to argue that:

  1. they had a right to privacy under the Human Rights Act 1998; and/or
  2. the invasion of privacy that they were suffering amounted to a legal nuisance.

There were a number of hurdles that the residents needed to overcome in order to make out their Human Rights Act privacy claim, the first of which was that the Tate Modern was a quasi public body. Unfortunately for them, this claim failed because the judge concluded that the Tate Modern was not exercising “functions of a public nature“, which left the residents with the nuisance claim.

What is legal nuisance?

A legal nuisance is usually caused by someone doing something on his land which becomes a nuisance to a neighbouring land owner. The neighbouring land owner will, as a result, have a claim in nuisance.

It is established case law that interference with a neighbour’s quiet enjoyment of its land can amount to an actionable nuisance. The question here, was whether an invasion of privacy could amount to an interference with the residents’ quiet enjoyment of their properties.

The decision

The judge in the case acknowledged that “the law of nuisance ought to be, and is capable of, protecting privacy rights from overlooking in an appropriate case“. However, what is important in each case is “whether, and to what extent, there is a legitimate expectation of privacy“.

In reality, the residents had bought flats in central London with floor to ceiling windows. In deciding that there was no actionable nuisance on the facts the judge considered it relevant that:

  • the occupiers of these flats “can expect rather less privacy than perhaps a rural occupier might“, given the position of the flats next to the Tate Modern in central London; and
  • the fact that the building design including floor to ceiling glass walls meant the residents had submitted themselves to a “self-induced exposure to the outside world“.

These factors, in the judge’s opinion meant that it would be “wrong…to create liability in nuisance“.

The judge also took into account that the residents could easily take certain remedial steps to minimise the invasion of privacy, considering that they could “install net curtains“.

Although an unwelcome outcome for these residents, many city developers and building owners will welcome this decision. In particular, it is “vanishingly unlikely” (according to Guy Fetherstonhaugh QC, who together with Aileen McColgan and Elizabeth Fitzgerald acted for Tate Modern) “that the cause of action in this case could be applied in the case of “ordinary” overlooking of the sort that might arise between neighbours. The whole point in this case was that the Viewing Platform was expressly designed to provide a view – something that could not be said of a normal residential or office block.

The residents are considering appealing, so this may not be the last we have heard on this matter.

Case reference: Fearn & Others v The Board of Trustees of the Tate Gallery [2019] EWHC 246 (Ch)

Posted in Real Estate News

Can BREXIT frustrate a lease? High Court says No Deal

The High Court has today handed down judgment in the closely watched case of Canary Wharf (BP4) T1 Limited and others v European Medicines Agency.  In what will be viewed as a relief for the property industry, the Court has held that the European Medicines Agency remains bound by the terms of its lease, notwithstanding BREXIT.

What is the case about?

The European Medicines Agency (EMA) leases 30 Churchill Place, Canary Wharf pursuant to a lease entered into in 2014 for a term of 25 years, with no break, expiring in 2039.  The lease was granted pursuant to an agreement for lease entered into in 2011.  The current rent is approximately £13m.

Canary Wharf sought a pre-emptive declaration from the Court that BREXIT does not frustrate the EMA’s lease.  In response, the EMA argued that, as a result of BREXIT, its lease will be frustrated and so, as from 29 March 2019, it will not need to comply with its obligations in the lease.

What is frustration?

Frustration is the legal principle that a contract, including a lease, can be terminated if performance effectively becomes impossible.  A frustrating event must be one which:

• occurs after the contract in question has been entered into;
• is so fundamental as to strike at the root of the contract;
• is entirely beyond what was contemplated by the parties;
• is not due to the fault of either of the parties;
• makes any further performance of the contract impossible or illegal or makes performance radically different from that originally contemplated by the parties.

What has the Court decided

In a complex and detailed judgment, which delves into the constitutional intricacies of EU law, the High Court has found in favour of Canary Wharf and held that the lease was not frustrated. In particular, the Judge held that it would not be impossible as a matter of European or English law for the EMA to continue to hold the lease post-BREXIT and indeed there was no legal requirement for it to leave the UK as an automatic consequence of BREXIT.

Whilst the Judge thought that the possibility of BREXIT could have been foreseeable when the lease was granted in 2011, it was not sufficiently foreseeable that it could have been reasonably expected to impact on the parties’ decision making at the time. That said, ultimately, the EMA had negotiated a 25 year lease and had received an incentive package which reflected the long term certain it was signing up to. Moreover, the lease contemplated the possibility that the EMA might at some point wish to divest itself of the building and included provisions for assignment and sub-letting (albeit on onerous terms). There was nothing to prevent the EMA from seeking to divest itself of the lease through those contractually negotiated provisions and it would be unfair to now provide it with a further means of doing so.

What are the implications of the case?

In reality, and despite the degree of attention it has attracted, the wider implications of the case were always likely to be limited. Ultimately, the arguments turned on the very bespoke characteristics of the EMA as a European institution and the prospect of a wider risk of commercial tenants seeking to argue that BREXIT is a frustrating (in the legal sense!) event has always seemed wide of the mark. However, the Court’s decision reaffirms the very high threshold required to establish frustration and ought to lay to rest any residual concerns on that front.

Posted in Real Estate News

Time’s up for residential letting fees

The Tenant Fees Act 2019 received royal assent on 12 February and comes into force on 1 June 2019. The Act aims to improve transparency and affordability in England’s residential lettings market. It bans various fees often charged to tenants – including fees for reference checks, key collection and inventories. It also caps permitted payments. Research indicates that fees charged have far outstripped inflation, rising by 60% during 2010 – 2015, and that the Act will save tenants £70 per household.

The Act applies to assured shorthold tenancies (excluding social housing and long leases), student leases and most licences to occupy (collectively referred to as ‘tenancies’). Initially it will only apply to new and renewal tenancies, but from 1 June 2020 it will apply to existing tenancies too.

Permitted Payments

Rather than listing banned fees, the Act prohibits landlords/agents from requiring any payments from tenants except payments which are permitted. This approach is intended to remove potential loopholes through which the spirit of the legislation could be abused.

The permitted payments are:

  1. Rent: The Act does not allow rent ‘spikes’ at the start of lease terms to offset agents’ letting fees which landlords may now have to pick up.
  2. Tenancy Deposits: tenancy deposits must be capped at five weeks’ rent where the annual rent is less than £50,000 or six weeks’ rent if the annual rent is £50,000 or more.
  3. Holding Deposits: holding deposits must be capped at one week’s rent and returned to tenants except in certain circumstances.
  4. Default Payments: capped default fees are only permitted for late rent or replacement of lost keys.
  5. Payments on variation, assignment, novation or termination at the tenant’s request: Variation, assignment or novation fees are capped at the higher of £50 and the reasonable costs incurred. Early termination fees are limited to landlord’s loss and the agents’ reasonable costs.
  6. Payment of council tax, utilities, TV licence or communication services bills.

Remedies

Enforcement remedies include fines of £5,000 or, in the case of repeat breaches within five years, criminal liability, banning orders and fines of up to £30,000. Lease terms requiring prohibited payments are not binding, but tenants who have paid unlawful fees can seek to recover them via the courts. A landlord who has not repaid a prohibited payment to an assured shorthold tenant cannot use section 21 Housing Act 1988 to regain possession of their property at the end of the term.

Comment

The increasing number of private residential renters will welcome the new law. What remains to be seen is whether the Act will result in increased rents levied by landlords who face increased fees from letting agents.

Posted in Real Estate News

Consumer disputes in the housing sector: a long-awaited reform

Consumer access to remedy has long been a neglected part of what many consider to be an already broken housing market. Housing disputes are heard in a number of different legal settings and the process is often convoluted and opaque. As a result, this vulnerable part of the real estate sector (private renters, social housing residents, leaseholders and buyers of new build homes) can face insurmountable barriers in bringing their cases to justice.  Following a White Paper on the topic in early 2017, and a consequential consultation, the Secretary of State for housing, communities and local government published his response to the issue at the end of last month.  The response sets out a number of proposals for reform.  Although a number of programmes are envisaged, the predominant feature consists of a single, accessible portal which will streamline disputes by referring complaints to the appropriate ombudsman, whilst maintaining the various specialisms needed in this area.

The government has highlighted three key sectors that will be impacted by the reform: the private rented sector; leasehold properties and new builds.

Compulsory membership and justice without courts

The government wants people to be able to access help in resolving housing complaints without needing to apply to the court system The government is going to introduce legislation which will require all private rented sector landlords, regardless of whether they employ a managing agent, to be part of a scheme for remedying complaints.  Notably, this includes all private providers of purpose-built student accommodation.  As for developers of new build homes, the government is also proposing to bring forward legislation that will require all developers of new build homes to belong to a New Homes Ombudsman.  These enhanced requirements for developers fulfil the government’s promise to “champion homebuyers” and protect their interests.  It is anticipated that failure to comply with the legislation will result in fines of up to £5,000.

Helping consumers find resolution

The obligation to belong to such a scheme only addresses part of the issue. What became clear during the consultation was that the multiplicity of schemes currently available is creating confusion, which deters people from actually bringing forward their complaint.  This is where the proposed Housing Complaints Resolution Service will come into its own: a new single access portal where help will be available in resolving complaints or disputes with their landlord, property agent or developer.  This service will be available for social housing residents, tenants and buyers of new build homes.

On-going consultation

A new Redress Reform Working Group will examine and critique the existing standards for dealing with housing disputes and publish voluntary guidance on how improvements can be made. Any particularly pertinent pieces of guidance can then be consolidated through legislation or regulation.  The ultimate goal is to produce a comprehensive “Code of Practice” which will cover the entire housing sector.  Expectations for how complaints are handled will be clarified and set out in a format that will be readily accessible for everyone.

With the proportion of households in the private rented sector having doubled over the last ten years, these reforms look to be timely. The aim is to speed up the rate at which cases are heard and to create a more accessible justice system for everyone.  It remains to be seen whether these new reforms will have the positive impact hoped for, or whether in practice this will be harder to achieve.

Posted in Real Estate News

Non-resident SDLT surcharge: adding 1% and more complexity

When the government announced in 2018 that foreign investors into the UK property market were to be targeted with an additional SDLT levy, we said that the devil would be in the detail. The consultation document published this week gives that detail. But just how devilish is it?

The government is going ahead with a 1% SDLT surcharge on top of the existing SDLT rates for non-UK residents purchasing residential property in England or Northern Ireland. Both freehold and leasehold interests will be caught but existing reliefs will generally apply as normal. Indeed, the distinct lack of specific reliefs from the new charge is straightforward (if likely to be unpopular). Mixed use schemes and purchases of 6 or more dwellings will at least continue to be treated as non-residential and therefore outside the scope of the surcharge.

Multiple Dwellings Relief will also be available. The government states that the minimum rate of 1% of the total amount paid will remain at the same level for those subject to the surcharge. This would appear to mean a minimum effective rate of 2% for non-residents benefitting from the relief once the surcharge is applied, although clarification of what is intended will be needed.

However, the surcharge looks set to add a further layer of complexity to the myriad of SDLT rules. In terms of calculating the amount due, adding 1 percentage point to the rate may sound simple. But once you factor in the surcharge, there will be (at least) 32 different permutations as to the rate of SDLT payable on a purchase of freehold residential property. The top rate of SDLT will become 16% for those within scope.

Given that it is branded a non-UK resident surcharge, you would be forgiven for thinking that it would not complicate things for a UK resident purchaser. Not so. The rules propose introducing either new or modified tests of residence for these purposes. (Ironically, using the existing tests was seen as too complicated.) An individual who is UK resident for income tax purposes could therefore still find themselves non-resident for SDLT purposes. Non-UK resident companies are in scope but closely held UK companies can also be caught if a non-UK resident could exercise control over them.

Even the government’s stated aim of helping to control house price inflation seems fraught with difficulty. Reliably predicting the impact of tax measures on house prices is notoriously difficult at the best of times. At least the rules are not coming in until a future Finance Bill (which year is not stated). Hopefully this will allow time for a bit of a re-think about the complexity of the SDLT rules for residential projects, which will only be made worse by this proposed charge.

The consultation can be accessed here

 

Posted in Planning

A beginners’ guide to affordable housing in London

It is estimated that the population of London will reach 10.8 million by 2041. According to the Mayor of London, around 43,500 affordable homes are required each year in order to meet London’s housing needs. Yet the issue as to how these homes will be delivered is one that remains controversial.

The provision of “genuinely affordable housing” was a key part of the Mayor’s election manifesto and plays a large part in the new London Plan which was issued in draft for consultation in December 2017.

The Examination in Public of the draft New London Plan is now taking place and is set to continue over the next five months. It came as no surprise that the drive to build more affordable housing was an overriding message in the opening remarks of the Deputy Mayor, Jules Pipe.

So, what does the draft Plan say about affordable homes in the Capital? Well, first of all, it says that half of all new homes should be affordable. However, a key part of the draft Plan is the implementation into policy of the threshold approach to viability assessment (Policy H6) which has been named the Fast Track Route.

What is the Fast Track Route? If a developer agrees to provide 35% or more affordable housing, it does not have to provide a viability assessment which usually means that it can secure a planning decision more quickly. This is because the lengthy periods of public and local authority scrutiny of the viability assessment are avoided. The type of affordable housing is also set so that: 30% of the affordable homes should be low cost housing; 30%  intermediate; and the remainder determined by the particular borough’s needs.

The Fast Track Route was first introduced in August 2017 in the Mayor’s affordable housing Supplementary Planning Guidance, so developers have had a while to get used to it. Despite initial uproar, it seems to be working quite well, with some developers appreciating the certainty that it brings to the planning process. However, the draft Plan states that a review of the threshold figure will be held in 2021 with a view to increasing this number, if deemed appropriate. So that’s something to watch out for.

The high cost of both land and labour and the imminent threat of Brexit mean that developing in the Capital is already risky, challenging and costly. In such a climate, the need for a smooth and quick planning system which provides certainty for developers is even more important.   Yes, many more affordable homes are needed, but with limited provision from the public sector, private developers need to be sufficiently incentivised if they are going to deliver the number of homes that the Mayor wants and London needs.

It will be interesting to see how this emotive and highly political issue is dealt with during the Examination in Public, and of course the Panel’s final report, which is expected in Summer 2019.

Posted in Real Estate News

The impact of drones on real estate

The use of unmanned aerial vehicles, more commonly known as drones, is increasing across the real estate sector, and for good reason. Drones have incredible safety and efficiency benefits for business. They are flexible and labour saving, and the ways in which drones are used across the real estate sector is increasing and seems likely to increase further. Organisations are already using drones to conduct external property inspections, at a cost far cheaper than any manual inspection regime. Drones are now being used for insurance valuations and heat seeking drones can be instrumental in ascertaining whether a building has damp. All of this information can then be shared digitally. It has even been suggested by trend analysts that drone inspections could replace physical property viewings entirely by 2025.

Of course all technology can be used for good and for bad, and drones are no different. Here in the UK, as the number of drones in the air continues to grow exponentially, lawmakers are grappling with drone safety and security concerns. At the same time, public awareness around the misuse of drone technology is growing. In recent months, we have seen a drone cause a main infrastructure bridge to close down and major airports brought to a standstill by the unlawful use of drone technology.

As a result, despite the clear technological and economic advantages to drone technology for the commercial market sector, we have seen some resistance to drone technology from members of the public and landowners. Coventry City Council has recently joined other councils and announced plans to implement a general ban on drones in parks and open spaces unless permission to fly a drone is sought and granted from the council. As landowners, councils are primarily concerned about the liabilities they could incur from any damage caused to people or property on council land and also from increases in trespass and nuisance incidents.

In response to recent drone incidents, the government has announced plans to extend the no-fly parameters around major infrastructure and to provide the police with greater powers to seize drones and fine their misuse. Currently however, the laws surrounding the interaction of drones and property remain untouched.

Article 95 of the Air Navigation Order states that drones cannot be flown within 50m of a person, vehicle or building “not under your control”. There is little guidance on the meaning of “not under your control” when it comes to airspace but the case of Bernstein of Leigh v Skyviews & General Ltd [1978] establishes that a landowner’s airspace extends to such height as is necessary to ensure the ordinary use and enjoyment of the land. However, drones flying closer than 50m to private property do not necessarily trigger claims of trespass, as demonstrated in Anchor Brewhouse Developments Ltd v Berkeley House (Docklands Developments) Ltd [1987]; there must be a degree of regularity and permanence to the infringement.

As drones become more popular and their uses evolve, it is clear that the law and drone technology need to develop, particularly as landowners are likely to want to embrace this new technology and take advantage of the unique opportunities and perspectives that drones present. We must strike the right balance between innovation and security in order to enable the many benefits of commercial drones, while preventing the bad.

Posted in Real Estate News

ACM Cladding: Where are we now?

On 21 December 2018 the government’s promised ban on the use of aluminium composite (ACM) cladding on residential buildings came into force. Paul Tonkin answers some key questions.

Does the ban apply to all buildings?

No, the ban applies to new buildings over 18 metres tall containing flats, as well as new hospitals, residential care premises, dormitories in boarding schools and student accommodation over 18 metres.

What about buildings under construction?

The ban will not apply where building working started before or within 2 months after 21 December 2018.

What is the effect of the ban?

The regulations prohibit the use of combustible materials on the external walls of new buildings. Any materials which form part of external walls and attachments such as balconies or sun-shades must achieve the requirements of European Classification A2-s1, d0 or A1 (classified in accordance with BS EN 13501-1:2007+A1:2009 entitled “Fire classification of construction products and building elements”). There are limited exceptions – for example for windows and doors.

What about existing buildings?

The ban does not apply retrospectively to existing buildings. However, the government has made clear that it expects the owners of privately owned buildings to replace ACM cladding without passing the costs on to flat owners. The government has identified 289 privately owned residential high-rise buildings containing combustible cladding panels and has introduced new powers for local authorities to remove cladding on privately owned buildings and to recover the costs from the owners. Whilst the government has said that costs should not be passed on to flat owners, this is not currently legally binding and the position will be governed by the terms of the leases. There have already been cases in which the First Tier Tribunal has held that flat owners were responsible for the costs of replacement cladding and associated fire safety measures. That said, a number of building owners have publicly committed to funding the works themselves and not passing the costs on to flat owners.

Hogan Lovells has a team of real estate, construction and regulatory lawyers ready to advise on these complex and fast-moving issues. Should you require further information please contact Paul Tonkin or your usual Hogan Lovells contact.