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Articles Real Estate 12th May 2017

Real Estate Bulletin: Spring 2017

A welcome from the editor…

Welcome to the Spring edition of the Real Estate Bulletin. This quarter, we revisit cases about whether land can be listed as an Asset of Community Value and whether ‘all’ means ‘all’ or ‘any’. We look at new cases on the interplay of public rights of way and registration of Humpty Hill (yes, really) as a town or village green, a return to injunctions for a flagrant infringement of a right to light and the measure of compensation when a “no development” convenant is modified. We also cover some interesting landlord and tenant issues.

The Bulletin brings together highlights from our popular quarterly update training sessions, so if you are local to the East Midlands or pass through every now and again and would like details of our next event in July, please get in touch.

Case Law Update

Development – Assets of Community Value: Banner Homes v St Albans Council

Key points:

  • Assets of Community Value (ACV) were introduced by the Localism Act 2011
  • Community groups have the right to bid for and buy local land that is considered to have community value – ie its actual current use furthers the social wellbeing and interests of the local community and it is realistic to think that the land can continue to be used to further such wellbeing and interests
  • Such actual use does not have to be lawful
  • Once land has been listed as an ACV, the landowner is restricted from disposing of it for a period of time. Land will be listed for a period of five years during which the restrictions on sale apply

We first covered this case in Winter 2015. By way of update, Banner owns a field in the green belt which it wants to develop for new housing. The field was listed as an ACV in 2014 and Banner has made various attempts to review the listing decision – the most recent application, to the Upper Tribunal, has also been unsuccessful.

Practical implications:

For a period of five years from the date of listing, if BH want to sell the land, it must give notice to the Council of its intention to sell. Community interest groups would then have six weeks to ask to be considered as a potential bidder, and if this happens, BH is prevented from selling the land to anyone else for a period of six months.

The consequences of listing are not as serious for developers as the designation of land as a town or village green, but the restrictions on sale can cause delay and inconvenience. We are seeing an increasing number of cases on ACV, although to date, these have related to more obvious assets such as pubs or other locally interesting buildings. The ACV legislation applies to open land as well, the fact that the use of the land by the community has been unlawful does not affect the ability to list it and this decision shows how those opposing development in an area can use the ACV regime to disrupt potential schemes.

If you would like further advice on all things ACV, please contact Mark Brown in our Milton Keynes office; (0845 271 6764). Mark has advised a number of clients on this topic, dealing with objections to nominations for listing on behalf of landowners, and conducting reviews of listing decisions and an appeal in the First Tier Tribunal.

Conditional contracts – interpretation: Dooba Developments v McLagan Investments

Key points:

  • As well as clearly defining the steps a party needs to take to satisfy conditions in the contract, the conditions themselves have to be carefully drafted
  • The meaning of one word can make all the difference as to whether a party can serve notice to rescind a contract or not

Unsurprisingly given the value of the site involved, there has been a speedy appeal against the summary judgment in this case reported in Autumn last year.

D and M entered into a conditional contract for the sale of a site in Worksop for development. The scheme included a proposed ASDA superstore. The sale price was £12M. The conditions to be satisfied related to planning, planning agreements, highways and ‘pre-start’. Either party could serve notice on the other to rescind the agreement if “all of the conditions have not been discharged” by the agreed longstop date.

M served notice to terminate as one of the conditions remained outstanding at the longstop date. D disputed the notice, applying a literal interpretation of the contract and arguing that the contract could only be terminated if all four conditions hadn’t been discharged. Initially, the court gave a summary judgment that ‘all’ in fact meant ‘any’, so that if any conditions were outstanding at the longstop date, either party could terminate. D appealed and was successful in persuading the High Court that the right to terminate the contract only arose if all of the conditions remained undischarged at the longstop date.

Practical implications:

This may not be the last we hear of this case. The drafting was finely balanced (not in a good way) and there is a lot of money at stake. You may think this all comes down to a lawyer’s point, but parties to an agreement also need to be clear as between themselves as to their expectations for delivery of a scheme (or not, as the case may be!)

Development – Town or Village Green applications – R (on the application of Allaway & Pollock) v Oxfordshire County Council

Key points:

  • Anyone can apply to register land as a Town or Village Green (TVG) where a significant number of local inhabitants have used the land as of right for lawful pastimes for at least 20 years
  • This use must be continuing at the time the application is made
  • Where an inspector appointed by the registering authority makes a recommendation, the courts are reluctant to interfere with the inspector’s discretion

A and P owned 14 acres of land known as Humpty Hill in Faringdon. In 2013, an interested party made an application to OCC for the site to be registered as a TVG. A and P, and a developer who was interested in developing the site, objected to the application, so OCC appointed an inspector to hold a public inquiry, produce a report and make a recommendation. The inspector’s recommendation was to allow the site to be registered as a TVG – he found that for the past 20 years, there had been low-level agricultural use of the land by A and P (mowing and baling of grass for hay) but also abundant use of the land for informal recreation (walking, dog walking, games, bird watching etc) by local people. After some more back-and-forth between the objectors and the inspector (who did not change his recommendation) A and P applied for judicial review of the decision.

A and P based their challenge on two grounds: first that most people who walked on the site did so along the footpaths around its perimeter and second that the people who used the site did not make up a significant number of those in the locality, instead those people lived in the immediate neighbouring area only 200 metres or so from the site.

The High Court upheld the inspector’s decision. Whilst many of the walkers on the site stuck to the perimeter paths, there was plenty of evidence as to use of the rest of the field for walking and other pastimes. A and P would have been aware of this and had not taken any steps to prevent the use. In relation to the locality issue, there was no requirement that people using the site should be geographically spread across the locality.

Practical implications:

Registration of land as a TVG has serious implications for developing the land – ie you can’t! We have covered a number of TVG cases over the years – this one is useful for clarifying that inspectors and councils can take account of the fact that land is used by people from only a small area that is very close to the application site.

Landowners need to be aware of how people are using their land. It is possible to deposit Landowner Statements with the registration authority (usually the county council), which have the effect of bringing to an end any ‘as of right’ user of the land, but if 20 years’ use has already been clocked up, there is a period of grace within which a TVG application can – and probably will! – be made.

It is critical that those looking to buy land of this nature for development carry out an inspection of the site, ideally at different times of the day and during the week and at weekends, to ascertain the extent to which the public use the land. Specific enquiries can be made of the registration authority about any pending TVG applications, but if you think a site is vulnerable, it is advisable to provide for this in your contract and give yourself the option to walk away if an application is successful.

Development – Injunctions for rights of light infringement: Ottercroft v Scandia Care

Key points:

  • Recently, the Supreme Court tried to steer judicial practice away from awarding injunctions for infringements of neighbours’ rights and towards awarding damages
  • However, the behaviour of the defendant will very much be taken into account and may well be the deciding factor in ordering the removal of the offending development rather than payment of compensation

O and S owned adjoining properties. S carried out a small development on its property, comprising a commercial unit on the ground floor with flats above. S replaced a wooden staircase that served as a fire escape for the flats with a new metal staircase. O ran a restaurant next door and complained that the new staircase infringed its right to light by obscuring light into the restaurant’s kitchen windows. S had given undertakings not to interfere with O’s alleged right, but had carried on with the works regardless. O applied for and was granted an injunction by the County Court, even though O’s claim was valued at under £900 and the cost to S of removing and relocating the staircase would have been around £6,000. S appealed, arguing that damages rather than an injunction were the appropriate remedy.

The Court of Appeal upheld the County Court’s decision. A key factor was the ‘high-handed and un-neighbourly’ behaviour of S, acting by its director, who was aware of the infringement, who made promises that were then broken and who decided to carry out the works at a time O’s premises were vacant and without informing O. The Court of Appeal judges were so convinced the County Court had got it right that they didn’t even need to hear the arguments from O’s lawyers!

Practical implications:

Given the relatively minor extent of the infringement here, you might have expected the court to award damages and this might well have been the outcome had S not carried on in the manner it did. The courts took a particularly dim view of S’s attempts to circumvent court intervention by giving undertakings and then disregarding them and by carrying out the works in secret and in the face of opposition.

For developers, the first step is always to ascertain which, if any, neighbouring properties have rights of light and whether the proposed scheme is likely to interfere with those rights and amount to a legal nuisance. Where issues do arise, these should be dealt with in an open-handed way. Sending the contractors round in the middle of the night to carry out the works is not the way forward!

Covenants restricting development – Compensation: Re Surana’s application

Key points:

  • A building scheme is a scheme of restrictive covenants that each resident of say, a residential estate can enforce against each of the others
  • Restrictive covenants can be modified or discharged by making an application under s84 of the Law of Property Act 1925
  • Compensation may be payable to other residents
  • This compensation is usually assessed on the basis of the diminution in value of the other residents’ properties but sometimes, it may represent a share of the development value of the land

S obtained planning permission to build two detached houses on land adjoining her own house. The land was part of a substantial residential estate in Cobham, Surrey, which was subject to a building scheme. S’s land was therefore subject to covenants preventing further building and restricting the use of the land to a green, garden, open space or pleasure ground for the benefit of residents.

Clearly S’s proposed works would breach these covenants. The land in question had never actually been used by the residents for recreational purposes and had in fact formed part of S’s garden since the 1960s. Therefore S made an application to modify the covenants on the basis that they impeded the reasonable use of her land and did not secure any practical benefits of substantial value.

Thirteen homeowners on the estate objected to the application and claimed compensation (ranging from £50,000 to £750,000) on the basis that modifying the covenants would result in a windfall for S and that they were entitled to a negotiated share of the development value of the freed up land.

S’s application was successful – the proposed development was in keeping with the size, style and density of the houses on the rest of the estate – but also, the Upper Tribunal decided not to award compensation to the other homeowners on a share of development value basis, but instead looked at the diminution in value of those properties, which was found to be nil!

Practical implications:

Pressures on land use and the need for housing are ever-increasing. Developers looking to build schemes in breach of covenant may not relish the thought of an application to modify or discharge the covenants, given the time, expense and uncertainty involved. Sometimes, however, this option is worth considering if it means you can avoid paying out compensation that is assessed as a percentage of the development value.

Landlord & Tenant Round Up

Licence to assign – withholding consent: No.1 West India Quay (Residential) v East Tower Apartments

Key points:

  • Landlords are usually obliged, by statute or contractually under a lease, not to unreasonably withhold or delay giving consent to a tenant’s application to assign the lease
  • The clock starts to run when the landlord is properly served with the tenant’s application
  • Tenants should treat service of applications in the same way they treat service of formal notices and serve in accordance with the terms of the lease or with any relevant statutory provisions as to service

E was tenant of 42 long leases of residential apartments at No. 1 West India Quay. The leases (unusually for long leases) contained provisions that the landlord’s consent to assignment was needed, but also that the landlord could not unreasonably withhold such consent.

E wanted to assign three of its leases. In relation to Lease 1, E sent its application to W at the correspondence address contained in the tenants’ sales pack for the development on 27 March 2015. Receipt of the application was acknowledged. Having heard nothing further, E sent another application to W’s registered office address on 29 April 2015 (the lease specified the registered address for the service of notices under the lease). W did grant consent on 13 May 2015, 47 days after the original application and 14 days after the later one.

In relation to Leases 2 and 3, W refused consent to assign on the basis that E had refused to provide bank references for the assignees, had refused to allow and pay for W’s surveyor to carry out an inspection to check for breaches of covenant and had refused to pay W’s legal and surveyor’s fees for dealing with the application.

E sought declarations from the court that W had unreasonably delayed giving consent to assign Lease 1 and had unreasonably refused consent to assign Leases 2 and 3. The court granted the declaration in relation to Leases 2 and 3 although the court did feel that the conditions requiring bank references and a pre-assignment in section were reasonable but were invalidated by W’s unreasonably high fees for dealing with the assignment. The court did not agree that W had unreasonably delayed giving consent in relation to Lease 1 because it found that E had not properly served its application in the first place.

Practical implications:

As well as being of interest to landlords of residential portfolios, this case has implications for landlords and tenants of commercial premises. Landlords should be aware of their statutory and contractual obligations when it comes to considering applications for consent to assign and should take note that one ‘bad’ condition to consent may invalidate other perfectly good reasons to withhold. It is quite reasonable for a commercial landlord to ask for and receive bank references and other information about an incoming tenant so that covenant strength can be assessed, but commercial tenants are more likely to argue that a pre-assignment inspection that allows a landlord to seek out breaches of covenant in order to withhold consent is unreasonable. Tenants should also take care when serving applications for consent and ensure these are sent to the correct address (although the decision in this case was particularly harsh on E in that respect!)

Service charge – duty to consult: Leaseholders of Foundling Court v London Borough of Camden

Key points:

  • Landlords of residential properties are under a statutory duty to consult tenants in order to be able to recover certain service charge costs
  • Failure to consult means the amount a landlord can recover is capped at £250 per leaseholder for works and £100 per leaseholder for other services, unless the landlord has obtained an exemption from the First Tier Tribunal
  • The decision in the Foundling Court case provides useful guidance when there are subtenants

LFC were a group of sub-tenants of long leases of a mixed use building described on the Hidden London website as a ‘concrete megastructure’. Their immediate landlord was Camden Council and the freehold was owned by superior landlord, Allied London. The subleases contained service charge provisions that obliged LFC to contribute towards the costs CC paid to AL under its headlease. So far, so not unusual.

AL wanted to carry out works to the property. It followed the statutory consultation procedure in relation to CC but did not consult with the actual occupiers, LFC. CC did send on copies of the consultation paperwork to LFC, but did not formally comply with the statutory requirements.

A dispute arose about the standard of the works, LFC refused to pay further service charge payments in relation to the works and they applied to the Upper Tribunal for a ruling on whether the consultation procedure had been properly followed. The Tribunal found that it had not, so the statutory cap applied.

Practical implications:

Superior landlords must consult not only with their immediate tenants but also with any subtenants before carrying out qualifying works or entering into qualifying long term agreements. This makes sense given that the subtenants ultimately pay for the cost of the works or services, but could be a huge administrative burden where there are multiple subtenants. However, it’s worth it in light of the statutory cap!

Intermediate landlords in the position of CC would be well advised to co-operate with their superior landlord in terms of consultations and providing information about individual subtenants and not fall into the trap of thinking their own liability would be capped at £250 or £100, as this might not apply if their actions lead to subtenants not being properly consulted.

Lease renewals – rent: two new cases

Key points:

  • Business tenants may have a statutory right to a new lease at the end of the contractual term
  • The terms of the new lease are usually agreed between the parties but if they can’t agree, the court will decide
  • This includes determining the level of rent payable under the new lease

Flanders Community Centre v London Borough of Newham

F had a seven year lease of a community centre that expired in 2008. The centre was in a poor state of repair and because of this, the original annual rent payable was £1, if demanded, but would rise to £1,200 if F did not carry out certain works to the satisfaction of N within one year of the start of the lease. Some of the other terms of the lease were unusual in that they allowed N a greater degree of control over the running of the premises than one would expect to see in a commercial lease.

When the lease expired, the parties tried for some time to negotiate terms for a new lease. One of the main sticking points was the rental level and both parties instructed experts. F’s expert argued the new rent should be £1 as payable under the original lease, N was looking for a commercial lease and its expert put forward a figure of £16,000.

The problem for all concerned was the lack of comparable properties and ultimately, the County Court ordered the new rent to be £1. The expert evidence on both sides was found to be in adequate – the court could not make a reliable finding as to the market rent, so decided the rent should continue at £1. N appealed to the High Court but was unsuccessful.

Practical implications:

An appellate court will only interfere with a lower court’s decision if there has been an error or law or a serious procedural error. It will not revisit the facts put to the lower court, which is why expert evidence can be crucial. In disputes relating to unusual premises or unusual lease terms, the parties should give the court as much help as possible on the effect of such peculiarities – something that should also be taken into account when carrying out market rent reviews of such properties.

Britel Fund Trustees v B&Q

Key points:

B was landlord of a large retail DIY warehouse on Tottenham Hale Retail Park. B&Q had a lease of the unit, under which it paid an annual rent of £776,000. The parties had agreed all of the terms for new lease, save for the annual rent and interim rent.

The parties had agreed that the new lease would contain a mutual rolling break right which could be exercised on six months’ notice after an agreed date in 2018. B intended to redevelop the site and had already obtained planning permission, so needed to be able to get vacant possession of the property.

In terms of rent, the parties were over £400,000 apart. The parties asked the court to consider two issues: whether an allowance should be made for a three month rent free period, which a tenant taking a new lease would ordinarily get in the market for fit out; and what the open market rent for the new lease – taking account of the break clause – would be.

The court dealt with the rent free period issue fairly easily, despite conflicting case law on the point. A rent free period would be granted and applied over the term of the lease, resulting in a discount of 2.5%.

The rental value issue was more tricky. The experts for both parties had initially based their figures on the new lease being a 10 year term granted to a DIY retailer, with a discount then being applied to take account of the break but at trial, it was conceded that no DIY retailer would take a lease with such a potentially short term (occupation was only guaranteed until 2018). The court had to think about who would be the most likely or hypothetical tenant and agreed with B&Q that this would be some sort of discount retailer who wouldn’t require a long or expensive fit out and traded at a discount. As no comparable evidence was available to the court decided on the rent appropriate to both kinds of retailer then had to apply the discount for the break right. Ultimately the court settled a rent of £373,000 (which was much closer to B&Q’s opening gambit than to B’s).

Practical implications:

Again this case highlights the importance of comparables, particularly in relation to rent free periods and of the hypothetical tenant for a new lease. The terms of the new lease are also critical – introducing new terms, such as a break right, even by agreement, can impact on the rent.

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

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