Real Estate Bulletin: Spring 2015

Welcome to the Spring edition of the Real Estate Bulletin. This quarter we have a number of cases that will be of interest to both commercial and residential developers.

Case Law Update

Development – trespass – injunction: Charlie Properties Ltd v Risetall Ltd & Anr

Key points:

• A recent Supreme Court decision has changed the way the courts approach claims for injunctions in property cases
• Where the defendant is trespassing on land rather than interfering with its use and enjoyment in other ways, there may be more justification for granting an injunction rather than damages

C and R own properties next to each other. Part of C’s site is a derelict sausage factory that C wanted to redevelop. R was already in the process of redeveloping its own property into flats. R wanted to buy part of the derelict site but negotiations came to nothing, so R proceeded to appropriate part of the land and incorporated it into its construction site!

R concreted over a shared yard so that it could store building materials, put up a Portacabin, erected fencing, dug out a lightwell and put balconies on some of the new flats that projected into C’s airspace.

C brought a claim against R.

R admitted it was trespassing and accepted it must pay damages, but defended C’s claim for an injunction to prevent the trespass. C got its injunction.

Implications:

R relied on the Supreme Court decision in Lawrence v Coventry last year, arguing that the courts now have an unfettered discretion to award damages instead of an injunction.

However, the court here drew a distinction between the Lawrence case, which was based on a nuisance claim, and the current case, which was based on trespass (ie a physical interference with the property itself). Also, R had committed a flagrant and deliberate act and had behaved in a high-handed manner, rendering an injunction necessary in order to do justice to C and to serve as a warning to others. So consider yourself warned…

Development – Section 38 Agreements: R (on the application of Redrow Homes Ltd) v Knowsley MBC

Key points:

• Once they’ve been built to a specified standard, highways authorities usuallyadopt new roads by entering into agreements with developers under Section38 of the Highways Act 1980
• Onadoption, a road becomes maintainable at the public expense
• Butthis doesn’t necessarily mean the developer is off the hook in terms ofcontributing towards future maintenance costs

R built a new estate near Liverpool. Both R and the local authority, K, wanted the new roads to be adopted but K refused to enter into a Section 38 Agreement unless R agreed to pay a commuted sum (£39,000) towards the future cost of maintaining the street lighting. R resisted this on the basis that once a highway has been adopted, it becomes maintainable at the public expense.

The Court of Appeal looked at the wording of Section 38 and found that a local authority could ask for a sum to cover future maintenance and could also require a developer to pay for or even carry out future maintenance itself.

Implications:

It’s too early to say what effect this decision will have and how much of a worry it will be for developers. Historically, local authorities have only asked for relatively small commuted sums and even then not in every case. There are alternative statutory methods of getting new roads adopted. However, there is no consistency in approach from council to council and it will be difficult for developers to assess the risk (and calculate the likely cost) when buying sites as Section 38 agreements are not usually negotiated until planning has been granted, by which time the sale contract will have gone unconditional.

Development – Section 106 Agreements: R (on the application of Robert Hitchins Ltd) v Worcestershire County Council

RHL obtained planning permission to build 200 new homes. WCC wanted RHL to enter into a Section 106 Agreement that required them to pay £1.046 million towards the cost of implementing a local transport strategy. RHL disagreed that WCC was entitled to require such a payment but proceeded to negotiate the agreement – including a reduced and phased payment – as it was keen to get planning permission so the site could be sold on.

Three months after planning was granted, RHL did sell the site to another housebuilder. The sale was subject to the Section 106 Agreement but with the benefit of an indemnity from RHL that it would make any payments due under it. The buyer also agreed that RHL could make a second planning application in the same terms as the original but without the obligation to pay towards the transport strategy.

If the second permission was granted, the buyer would apply for approval of the reserved matters and implement the second permission.

The second permission was granted. On appeal, the inspector found that the obligation to make the transport contribution was out of proportion to the proposed development so that was done away with. The buyer had already started to implement the original planning permission and RHL had made the first phased payment. Once the second permission was granted, the buyer developed the later phases of the site in accordance with the second permission and RHL refused to pay the subsequent instalments to WCC.

The court found in favour of RHL. Where there are two planning permissions for a site, it is open to the developer to choose which one they implement.

Implications:

RHL adopted a clever strategy here. It could have appealed against the Section 106 requirements, but this would have taken a long time to resolve and it wanted to make the site sale-ready. Applying for a second, less onerous, permission and securing agreement from the buyer that they would implement only that later permission, meant the issue was resolved quickly. Note however, that this strategy wouldn’t have worked – and wouldn’t have been an issue – had the local authority adopted a Community Infrastructure Levy charging schedule. Under CIL, all chargeable development is subject to contributions towards infrastructure projects precisely like transport strategies, but it would at least have been apparent from the outset how much of a contribution would have been required and the basis upon which it was calculated.

Development – Assets of Community Value: R (on the application of East Meon Forge & Cricket Ground Protection Association) v East Hampshire District Council

Key points:

• The fact that abuilding is listed as an Asset of Community Value must be taken into account ifa planning application is submitted
• The weightaccorded to the listing will vary from property to property
• Other factors maybe more relevant if seeking to challenge the grant of a planning permission

The Forge in East Meon is the site of the original village blacksmith.

It is next to the East Meon Cricket Ground, within the South Downs National Park, a conservation area, is a non-designated heritage asset and is also listed as an Asset of Community Value.

It has fallen into disrepair, but the local residents feel very strongly about it – you can find out about the Forge’s history (and the recent dispute)

The current owner of the Forge submitted an application for planning permission. Well, it submitted three applications, but only the third one was granted. The owner was seeking permission to add extend the building upwards to include a first floor flat with a wooden decking veranda at first floor level, with floor to ceiling windows overlooking the cricket ground and an external staircase access. Sounds nice…

The East Meon Forge & Cricket Ground Protection Association was formed by local residents to protect the building and preserve the use of the recretation ground for cricket. It applied for judicial review of the grant of planning permission on three grounds, one of which related to the fact that the Forge was listed as an ACV and its submission was that the Council had failed to take this into account as a material consideration in the planning process. In fact, the planning officer had concluded that the listing had very little bearing on the proposed development and that this should be given negligible weight.

Ultimately, the planning permission was quashed but the primary reason was that the development would interfere with the continued use of the recreation ground for cricket because of the risk of damage to property and personal injury from cricket balls being hit for six (a concept which had to be explained to the judge on the day). Sport England is a statutory consultee in the planning process and had made various representations about the suggested protective measures, which would not have been enforceable via planning conditions. These representations had been disregarded by the Council without explanation or justification and should not have been.

Implications:

A victory for the Association, although the village is left with a disused building that will continue to degrade if work is not done to it – the development of the first floor flat would have made its full restoration as an functioning workshop economically viable. There is little substance in the government guidance on the impact of an ACV listing on a building in planning terms, other than it should be treated as a material consideration. On the facts of each case, the weight to be given to the listing will vary. The case does serve as a reminder of the limits of the listing scheme, in that it does not give community associations a right to buy a property that is not otherwise being put up for sale by the owner, even if they can show that they have the cash and the will to do so.

Development – Local plan – assessing housing need: Solihull MBC v Gallagher Estates Ltd & Lioncourt Homes Ltd

Key points:

• The requirementsfor assessing housing need under the National Planning Policy Framework aredifferent to those set out in the former Planning Policy Statement 3
• Developers may beable to challenge local plans which provide for housing supply based onresearch commissioned under PPS3

In 2013, SMBC was formulating its local plan. G and L put forward representations promoting sites they owned in the area to be allocated for housing, on the basis that SMBC’s proposals did not include sufficient land for housing to meet local demand. Not only did SMBC not agree, they went a step further and redrew the greenbelt to take the two sites in, thus putting the potential for residential development firmly to bed. SMBC then went on to adopt the local plan following the planning inspector’s recommendation.

G and L challenged the adoption of the plan on three grounds, two of which were that SMBC had not met the requirement in the NPPF to objectively assess and quantify housing need and that the Council had not applied the proper test for redrawing greenbelt boundaries.

The developers were successful in both the High Court and the Court of Appeal. SMBC had not complied with the requirements in the NPPF, as it had relied on research into housing need commissioned under the old PPS3 and on the numbers included in the now defunct West Midlands Regional Spatial Strategy. In relation to the greenbelt point, the court found that just because a site may not be suitable for housing development didn’t mean it should be included within the greenbelt without other exceptional or proper reasons.

Implications:

The decision is of importance both for councils and housebuilders and has spurred a number of challenges to the adoption of local plans where it is alleged that councils have not followed the proper process. The continued squeeze on local authority finances should not be a reason for recycling old research that does not comply with current planning policy.

Landlord & Tenant – landlord’s intention to demolish: Saturn Leisure Ltd v London Borough of Havering

Key points:

• Business tenantsare in certain circumstances statutorily entitled to be granted a renewal leaseat the expiry of the contractual term
• Landlords canoppose renewal on certain grounds
• Tenants can claimcompensation if a court refuses to order the renewal of a tenancy, or if atenant is induced to withdraw its application to renew, because of a misrepresentationor concealment of fact by the landlord during the renewal process

H owned the Romford Ice Arena. S operated the Arena on a profit-share basis under a management agreement. There was no intention to create any sort of tenancy or lease arrangement.

In 2009,S became insolvent and entered into a CVA, the terms of which stated that S was not trading and had no intention of trading in the future.

In 2011, H agreed to sell the site of the Arena for development as a supermarket and, even though H contended S did not have a tenancy, it served a Section 25 notice on S just to be sure it could give vacant possession of the site to the buyer. The grounds H relied on in the notice were ground (b) persistent delay in paying rent and ground (f), the redevelopment ground.

S commenced an action for a lease renewal, which H opposed on the grounds that S didn’t have a tenancy to renew, S wasn’t occupying the Arena for the purposes of its business and on the grounds set out in its Section 25 notice.

Eventually, S agreed to settle for a payment of £150,000 from H and S vacated the Arena. Unfortunately, that wasn’t the end of the matter. S later alleged that it had only settled because H had made representations that it would demolish the Arena within two months of obtaining possession of the site, which had not happened, so S issued proceedings against H for damages.

On the evidence, this wasn’t found to be the case – H had only intended to demolish if S had been successful in establishing that it did have a tenancy (otherwise it would not have been necessary at all).

Implications:

Landlord & Tenant – Assured Shorthold Tenancy deposits: Charalambous v Ng

Key points:

• The courts have now filled in the final gap inthe much-criticised legislation governing the protection of tenant depositspaid under assured shorthold tenancy arrangements
• It has resulted in another hurdle for landlordsseeking possession of residential properties let on an AST basis

T entered into a one year assured shorthold tenancy of a property back in 2002. T paid a deposit to L at that time. The AST was renewed a couple of times and then in 2005, a statutory periodic tenancy arose under the Housing Act 1988. In 2007, new legislation came into force requiring landlords to protect tenant deposits in a designated tenancy deposit scheme. Given that this had been a long-standing arrangement, L had simply carried over the deposit each time the tenancy was renewed but had not paid the deposit into a scheme.

In 2012, L served notice under Section 21 Housing Act 1988 to recover possession of the property. T argued that the notice was invalid because the deposit had never been paid into a scheme. T was successful on appeal and L’s notice was found to be invalid.

Implications:

There is no requirement to protect a deposit received before April 2007. However, landlords cannot serve a Section 21 notice to recover possession if the deposit is not protected in a designated scheme at the time the notice is served. Another, not entirely helpful, suggestion from the Court of Appeal was that the landlord could have cleared the way for the service of a valid Section 21 notice by paying the deposit back to the tenant, which seems to defeat the purpose of having taken the security in the first place!

Landlord & Tenant – landlord’s release on transfer of reversion: Reeves & Downing v Sandhu

Key points:

• Landlords are notautomatically released from theirobligations in a lease when they transfer the reversion and will remain liable jointly and severally with the transferee
• Landlords can eitherask for a release from the tenant, follow the statutory procedure for releaseor draft for an automatic release in the lease itself
• Remember that releasescan cause issues in multi-let buildings

S granted a lease of premises to R. The lease contained landlord obligations on S to insure the premises and to reinstate insured damage. In 2008 there was a fire at the premises and the following year, R sued S for breach of covenant as the premises had not been insured.

S defended the claim on the basis that he was no longer the landlord of the premises because, soon after the lease was granted, he had transferred the freehold reversion to his company and R had sued the wrong party.

However, as S had not obtained a release from the landlord covenants at that time, the court confirmed he was still on the hook.

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The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.