Real Estate Bulletin – Autumn 2017
A welcome from the editor…
Welcome to the autumn edition of the Real Estate Bulletin. This quarter, we look at how the Valuation Office treats cash machines and how failure to treat the dreaded Japanese Knotweed can lead to liability. We’ve some cases on easements, covering the extent of benefiting land, at what point you can or can’t enter your property from a driveway and what happens when an easement to commit a nuisance arises. We also look at assigning the benefit of a contract (or not), a refusal by the Court of Appeal to open the floodgates on discharging restrictive covenants and how de-listing an Asset of Community Value can occur. For landlords and tenants, we look at when a landlord can refuse consent to a change of use and the age-old question of is it a lease or is it a licence? The planning points cover Section 106 Agreements and a couple of cases about statutory maintenance notices.
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 December, please get in touch.
CASE LAW UPDATE
Business rates – Cash machines: Sainsbury’s Supermarkets Ltd v Sykes (Valuation Officer)
- ATM sites are separate hereditaments for rating purposes
- Who is responsible for paying the rates depends on the location of the machines
ATM sites in numerous locations such as supermarkets, petrol stations and convenience stores used to be rated as part of the host store. In 2014, the Valuation Office amended the 2010 rating lists to create separate entries in respect of ATM sites in stores operated by Sainsbury’s, Tesco and the Co-Op. As such, the ATM sites became separate hereditaments with their own rateable value. In most cases there wasn’t any corresponding reduction in the rateable value of the host store, hence the proceedings issued by the affected retailers.
The issues for the Upper Tribunal to consider were whether sites on which ATMs are placed in supermarkets, petrol filling stations etc. are liable to be entered in the non-domestic rating list separately from the premises within which they are situated; and, if the ATM site is a separate hereditament, is it the owner/occupier of the site (i.e. the supermarket) or the provider of the ATM (i.e. the bank) who is the occupier of the hereditament?
The Tribunal decided that each ATM site (whether inside a store or a “hole in the wall” external ATM) was capable of being listed as a separate hereditament. The only exception was for free standing ATMs, which could be moved around. For fixed ATMs, the Tribunal took the view that the store would have been designed or adapted to accommodate the machines and they were not just an indistinguishable part of the store.
Having settled the first issue, the Tribunal went on to decide that sites of externally accessed ATMs should be entered as separate hereditaments in the occupation of the ATM provider, whereas internal ATMs (i.e. those that are only accessible to those entering the store) were in the occupation of the host store.
Liability for business rates is determined by defining the hereditament (the land) and the occupier. However, as well as having an impact on business rates liability, there are landlord and tenant implications.
If a host store occupies the premises pursuant to a lease, putting an ATM in the premises may need landlord’s consent either to making physical alterations to the property or to the tenant sharing possession of the store with the ATM provider. This is something for retail tenants to bear in mind.
It is understood that an appeal is pending so watch this space!
Contracts – assignment of benefits: General Nutrition Investment Co v Holland & Barrett International Ltd
- Contracts are often transferred in a business context
- There are various formalities for assignments; these will be set out in the contract itself but there may also be statutory requirements
- In order for an assignment to be legally effective, Section 136 of the Law of Property Act 1925 must be complied with (in short, written notice should be given)
This is an intellectual property case but is important when considering perfection of an assignment of contractual rights under Section 136.
G served a notice to terminate a trademark licence agreement which permitted H to use certain trademarks in the UK. G had taken an assignment of the benefit of the trademarks from the original contracting party. That original party had subsequently been dissolved.
G had not perfected the assignment at law by giving notice to H pursuant to Section 136 and when the matter came to court, it was found that G was not legally able to terminate the agreement in its own right. G may have been able to compel the original party to exercise the right to terminate, but that company no longer existed.
Failure to comply with Section 136 means any assignment is merely equitable, so the assignee cannot enforce the contract in its own name. In this case, G couldn’t terminate the contract; in the case of an option agreement, the assignee would not be able to exercise the option (i.e the very right it may have paid a lot of money for!) unless there was a mechanism for compelling the original party to exercise it on the assignee’s behalf. This is something to bear in mind when negotiating to take the assignment of the benefit of any type of existing agreement.
Development – Assets of Community Value: New Barrow Ltd v Ribble Valley Borough Council (Community Right to Bid)
- The Localism Act 2011 introduced a ‘community right to bid’ for local amenities such as village stores and pubs
- Community interest groups can apply for such amenities to be listed as assets of community value (ACV)
- If the owner of a building that has been listed as an ACV wants to sell it, it must give community interest groups time to bid for the property and raise the funds to buy it before selling on the open market
NBL owned an area of land, which included allotments used under licence by Barrow Allotment Holders’ Association (BAHA). On 20 February 2014, NBL was granted outline planning permission for the construction of 504 dwellings and associated development on the land.
In February 2016, the allotment land was listed as an ACV following an application by the parish council and BAHA.
On 10 March 2016, NBL served notice on BAHA terminating the licence and requiring BAHA to vacate the allotment land. NBL then granted Redrow a licence to occupy for up to five years so the housebuilder could use the listed land as a depot and builders’ yard for the purposes of the development.
NBL appealed to the First Tier Tribunal to have the allotments de-listed as an ACV. The Tribunal had to consider whether, in view of licence granted to Redrow, there was a realistic prospect of the use of the allotment land continuing to further the social wellbeing or social interests of the local community as required by the Localism Act 2011.
The Tribunal found in favour of NBL and the allotment land was to be delisted and used to facilitate works on the site. Due to the Redrow licence, which extended beyond the five year period for which the allotments were to be listed, continuing use of the land as allotments was unrealistic.
Many different types of properties (around 4,000) have been listed as ACVs in England, but as at February 2015, only 11 such assets had actually been bought by community interest groups. Listing a property with ACV status doesn’t mean it can’t be sold or must be sold to the community, but it does impose a moratorium intended to facilitate purchase for the community. This case shows that changing circumstances surrounding an ACV may lead to de-listing and therefore loss of the community right to bid. If you are affected by listing of a property, contact Mark Brown in our Milton Keynes office.
Easements – extent of benefiting land: Gore v Naheed & Another
- It was established back in 1904 that a right of way granted for the benefit of property A cannot be used, in substance, for the benefit of property B, because extending the access to property B imposes an additional burden, which is potentially outside the scope of the grant
- However, if the use of property B is merely ancillary to the use of property A, the right may fall within the grant
G owned The Granary which benefited from an express right of way over a driveway granted in a conveyance dated 11 November 1921 “for all purposes connected with the use and occupation” of The Granary. Part of the driveway was later acquired by adverse possession by G’s predecessor, who built a garage on it.
In 2007, G acquired The Granary and the garage – he used the driveway to gain access to both. N owned the driveway, which was often blocked by vehicles delivering goods to N’s property.
As a result G could not always access his garage, so he applied for damages and an injunction preventing N from obstructing the driveway.
G was successful in getting his injunction – N could not obstruct access to the garage and was limited to parking on the driveway for up to 20 minutes only for loading and unloading. N appealed, arguing if the injunction was to remain in place, he should be able to park for up to two hours. The Court of Appeal did not think this was reasonable!
A key point in this case was that the use of the garage was ancillary to the use and enjoyment of The Granary and that the ancillary use fell within the scope of the original grant.
Ascertaining the extent of an expressly granted easement is a question of construing the original grant. This will always be a question of fact and, as N found out to his cost, an appeal court is unlikely to revisit this aspect of a case. When negotiating rights as part of an acquisition, it is important to be clear about your intentions (so your lawyers can document them using appropriate wording), bearing in mind that easements are granted in perpetuity and things may change over the years.
Easements – right of way: Shaw v Grouby
- The extent of an easement is determined by its physical extent, the purpose and manner of its use and any limitations on that use
S owned one of three houses that had been built in the grounds of a manor house. There was a long driveway from the manor house to the public highway. S’s property benefited from an express right of way granted in a Transfer from 1999 “to pass and repass at all times and for all purposes over and along so much of the private driveway edged green on the plan as is necessary to obtain access to the Property”. The whole of the driveway was edged green.
Part of the boundary of S’s property abutted the driveway and S accessed her property through a gap in the fence. Later, S built a wall around her property and opened up a new access point further along the driveway (i.e. nearer to the manor house).
G, the owner of the manor house, claimed that under the terms of the 1999 Transfer, S was only entitled to access her property from the original access point. G argued that S’s right of way was limited to what was physically necessary to obtain access to her property at the time of the grant or that, alternatively, the grant required the access to be obtained at the point nearest to the highway.
Neither the High Court nor the Court of Appeal agreed with G. The Court of Appeal found that the words “necessary to obtain access to the Property” used in the 1999 Transfer accommodated and permitted the use of a different point of access from the property onto the driveway and was not limited to the original point of entry.
When negotiating the sale of property that forms part of a larger site, make sure that the nature and extent of any rights of way and other easements are agreed. If, as a seller, you want to restrict access to a particular point, this needs to be expressly documented to avoid this sort of argument in the future. Buyers will want to make sure that rights granted are sufficient for their proposed use, taking account of any development plans and other planned alterations.
Easements – right to commit nuisance: Peires v Bickerton’s Aerodrome Ltd
- Easements can arise by long user, known as prescription
- Following the Supreme Court decision in Coventry v Lawrence, landowners can acquire prescriptive rights to commit a noise nuisance
- Remedies for aggrieved neighbours could be an injunction preventing the nuisance or, more usually, damages that reflect the diminution in value of the neighbour’s property
We first reported on this case in our Autumn 2016 bulletin. Readers may remember that P lived in large house adjacent to an aerodrome owned by BAL.
P accepted that a certain level of noise would emanate from the aerodrome, but contended that the noise of helicopters carrying out a specific training operation at a spot close to the boundary with her property was excessive and unreasonable. P claimed that the noise was a nuisance and seriously affected her enjoyment of her property in respect of the garden and the major parts of the house. The main living room and bedrooms faced towards the aerodrome and the noise from the helicopters was very different from other activities, being extremely loud and continuing for what P argued were unacceptable periods. In addition, a potential buyer of the property (Tess Daly of Strictly Come Dancing fame) was apparently put off the purchase when she went out into the garden and heard the noise.
BAL argued that the area where training was carried out was uniquely useful for that operation (it took place on a sloping area of land) and was only place where it could be carried out to meet the training requirements.
P and BAL disagreed about frequency of training – BAL said the training activity took place on average 1.5 times a week for 15 minutes or so each time but P argued it was far more frequent, carried on for an unreasonable length of time, was unpredictable and was interfering with enjoyment of her property.
BAL argued it had acquired a right to commit a nuisance by prescription as the helicopter activity commenced in the early 1960s. In the High Court, P was successful in getting an injunction that restricted the training operations to limited times during the week and to limited areas of the aerodrome and that’s where we left it last year.
BAL then appealed. One of the defences raised by BAL in the High Court was that it had statutory immunity against nuisance claims caused by aircraft in flight (Section 76(1) of the Civil Aviation Act 1982 for any plane spotters out there). The High Court judge dismissed this defence on the basis that the training activities were not “flights” but the Court of Appeal disagreed with the judge’s interpretation of the Act.
This seems to take us back to the Lawrence v Coventry position that damages are to be more readily awarded in lieu of an injunction in nuisance claims, although BAL succeeded due to the application of aviation law, which obviously wouldn’t save other operators of noisy businesses.
Noise disturbance may result in substantial damages to reflect the capital diminution in value of neighbouring properties due to noise nuisance.
Environmental – nuisance – Japanese Knotweed: Williams v Network Rail Infrastructure Ltd and Waistell v Network Rail Infrastructure Ltd
- Japanese Knotweed is highly invasive and its presence on or near to properties can render them unmortgageable and therefore potentially unsaleable
- Property owners need to take appropriate steps to stop Japanese Knotweed not only from encroaching onto adjoining properties but also to prevent its growth close to boundaries
Two homeowners (the Ws) owned semi-detached properties adjacent to an access path owned by NR that led to a railway embankment. Japanese Knotweed had been growing on NR’s land for at least 50 years and had persistently spread to the Ws’ land.
The Ws’ brought a claim in private nuisance against NR, claiming that the Japanese Knotweed had also spread into the foundations of their properties.
There were two bases for the Ws’ claim: firstly encroachment onto their land and secondly the presence of Japanese Knotweed on NR’s land (the argument here was that the presence of the plant interfered with the quiet enjoyment or amenity value of the Ws’ land, affecting their ability to sell their properties at market value).
Cardiff County Court held that NR was liable in nuisance for the adverse effects caused to the two properties by the presence of the knotweed on its land. The court held that no claim lay against NR on the basis of encroachment, since there was no evidence of the plant causing any physical damage to the properties, but claims based on an unlawful interference with the Ws’ properties succeeded.
The presence of knotweed created an unlawful interference with the quiet enjoyment or amenity of Ws’ properties. The court found that the amenity value of a property could include the ability of its owner to dispose of it at a proper value. Damages were therefore awarded to cover the costs of treating the knotweed plus diminution in value occurring as a result.
Although the interference arose from a natural occurrence (i.e. the growth of weeds), the court ruled that NR ought to have known that the presence of knotweed created a risk for the Ws, and from the time it ought to have known, it failed to take sufficient steps to eradicate it. Whilst it had undertaken some treatment between 2013 and 2016 (including spraying it with herbicide) the court found this to have been inadequate.
NR have appealed the decision, so we will be revisiting this case. In the meantime, owners and occupiers should not allow Japanese Knotweed to spread outside their land – causing it to grow in the wild is an offence under the Wildlife and Countryside Act 1981, carrying maximum penalties of an unlimited fine and two years’ imprisonment. Allowing it to spread to an adjoining property may also amount to a statutory nuisance (as well as a private nuisance, as in this case), giving the local authority a power to serve an ‘abatement notice’ requiring it to be controlled. Breach of an abatement notice is an offence. This can be a particular issue on development sites, particularly those that have been cleared or disused for a period of time.
Environmental regulators now have powers to serve ‘species control orders’ on landowners and occupiers requiring them to control Japanese Knotweed on their land. Breaching a species control order is also an offence.
When treating Japanese Knotweed, there are a number of regulatory issues to consider – for example, only approved herbicides may be used and there are strict controls on the management of Japanese Knotweed waste. The safest solution is to use a competent contractor who can provide an insurance-backed guarantee.
County Court decisions are not binding precedents, but this one may well be followed in similar cases as it is based on the principles of private nuisance set out in leading cases heard in the higher courts. It also appears as though the Ws would have succeeded in their encroachment claims if the knotweed had actually caused physical damage to their properties.
For further advice on this issue, please contact a member of our Planning & Environmental team.
Development – discharge of restrictive covenant – Stafford Flowers v Linstone Chine Management Company Ltd
- Where land is burdened by restrictive covenants, a landowner can make an application for the covenant to be modified or discharged if certain criteria are satisfied
- When considering such an application, the Tribunal may take account of whether granting the application will be the ‘thin end of the wedge’
- Each case will turn on its facts, but there is a growing body of caselaw that gives guidance to developers on how the Tribunal might approach individual applications
The SFs owned a bungalow on a development of 250 bungalows on the Isle of Wight constructed for holiday use. Each bungalow was subject to a covenant preventing use for anything other than as “a holiday bungalow for leisure purposes” and prohibiting occupation during certain periods of the year. The restrictive covenants mirrored the conditions on the planning consent for the original development of the holiday park.
However, the SFs lived in their bungalow all year round in breach of the covenant. They obtained a certificate of existing lawful use under the Town & Country Planning Act 1990, based on 10 years’ occupation in breach of planning condition. They then applied to discharge the covenant under Section 84(1)(aa) of the Law of Property Act 1925, arguing that the restriction impeded some reasonable use of the land.
The Upper Tribunal refused to grant the SFs’ application. The covenant did confer practical benefit of substantial value to the beneficiaries of the covenant and to discharge it would be the “thin end of the wedge”, which could lead to a change in the character of the development as a whole.
Having made the bungalow their permanent home, the SFs asked the Court of Appeal to review the Upper Tribunal’s decision, but the Court found that the Tribunal had carefully considered the character of the holiday park and the potential for it to change were the covenant to be extinguished and its approach could not be faulted.
Discharge of a covenant affecting one plot, where a number of plots are subject to the same covenant, could have the adverse effect of undermining the overall integrity of a scheme, although the “thin end of the wedge” concept is not a rule of law. Whether relaxation of a covenant by the Upper Tribunal would open the door for similar applications to be made in the locality is a question of fact.
Remember also in this case that the covenants had been imposed to reflect a planning condition and that the SFs, having been in breach of this for a number of years, had obtained a certificate of lawful use; another reminder that the planning and land covenant regimes are separate.
LANDLORD AND TENANT ROUND UP
Assignment – buy-back clauses: TCG Pubs Ltd & Another v The Art or Mystery of the Girdlers of London
- In certain sectors, it is common to see “buy back” or “offer back” clauses in leases
- These clauses require a tenant to offer the lease back to the landlord before seeking consent to assign the lease to another tenant
In 1987, AMG granted a lease of a pub for 40 years. The lease provided that before a tenant could assign the pub, it had to “grant” AMG an option to buy back the residue of lease at the then current open market value. If AMG chose not to buy back the lease, the tenant could assign with AMG’s consent, which was not to be unreasonably withheld.
In 2015, TCG, the then tenant, went into administration and its administrators sold the business at above its market value. Under the business sale agreement, £1.7m of the purchase price was apportioned to the pub but that sum did not represent the market value, which according to a recent valuation, was probably more in the region of £600,000.
The solicitors acting for the administrators purported to trigger the buy-back option by offering to sell the lease to AMG “at a proposed price of £1.7 million”. The next day, the solicitors acting for the buyer of the business sent a letter to AMG requesting consent to the assignment of the lease to it.
AMG decided it could not afford £1.7m so it did not exercise buy-back option. It indicated it would, in principle, consent to the assignment on condition that it received a rent deposit equivalent to six months’ rent plus VAT. However, AMG then queried if the buy back provision had been correctly triggered on the basis that £1.7m was not the open market value of the premises.
The matter came to court to decide if:
- TCG had triggered the buy back clause;
- TCG had made a valid application to assign; and
- AMG had unreasonably withheld consent by requiring a rent deposit from the proposed assignee.
On point 1, strictly speaking the lease required the tenant to “grant an option” to AMG – something more than simply offering the lease back. The court agreed. The letter from the administrators’ solicitors did not amount to a formal option agreement, so the buy back clause was not triggered.
On point 2, as TCG had not triggered the buy back clause, the request for consent to assign was technically redundant, but the court considered the point anyway. Remember that the letter requesting consent to assignment came from the buyer of the business, not from the tenant under the lease, so at the time the request was made, it was not valid.
On point 3, again a redundant question as TCG had fallen at the first hurdle, the court found that had AMG insisted on a rent deposit, this would have amounted to unreasonably withholding of consent, given the financial status and covenant strength of the proposed assignee. However, AMG had later said they would accept a guarantor instead, and as they were entitled to do so under the express terms of the lease, the court agreed AMG had not acted unreasonably.
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.
‘Doing the right thing’ is at the heart of Freeths. Find out more about our excellent client service and the strong set of values that guide the way we work.
Talk to us
Freeths are a leading national law firm with 13 offices across the UK. If you have a query about our services or just want to find out more, why not give us a call?
Contact: 03301 001 014