Tarmac Quarterly Real Estate Update – Autumn 2021

Welcome to the Autumn Edition of the Tarmac Real Estate Bulletin.

This quarter we take a look at recent case law dealing with triggers for options to purchase, restrictive covenants and landlord and tenant disputes on interim rent and relief from forfeiture. We also review the latest updates on the Environment Bill.

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Property

Development – trigger for option to purchase

The Court of Appeal has considered the wording of an option agreement for the purchase of 117 acres of farmland. The buyer’s ability to exercise the option was triggered by the grant of planning permission permitting “any development” of the property.

The buyer obtained planning permission for minimal development of one building on the farm, which it never intended to implement and which it let expire. However, it argued that the grant of planning consent enabled it to exercise its option to buy the farmland from the seller and, under other provisions in the agreement, at a discount from its market value.

The High Court found in favour of the seller, and the buyer appealed. This appeal was dismissed. The Court of Appeal said it was contrary to commercial common sense to allow any planning permission for any development to trigger the option, and in the context of the facts of the case, ‘development’ had to mean something that would enhance the value of the property.

Practical tips:

• Practical tip – an option is a right to buy or sell land for a fixed price or at a price to be ascertained by an agreed calculation method
• Practical tip – option agreements often provide that the right to buy or sell is ‘triggered’ by a specified event, such as obtaining planning permission
• Practical tip – it is important that documents reflect the intentions of the parties, particularly when negotiating and drafting option agreements that may have a life span of many years

Restrictive covenants – ‘practical benefits’

The applicants owned a semi-detached house (Gorsebrook) and had planning permission to build a new house in the garden. The land was subject to a restrictive covenant, imposed in 1960, preventing the construction of any buildings ‘other than a garden shed summerhouse conservatory greenhouse or private garage’.

The objectors owned a substantial property over the road and the restrictive covenant benefited their property, albeit just the gardens and grounds, not the house itself. When the applicants applied to have the covenant modified, the objectors objected because of the impact the development would have on their enjoyment of their house (i.e. a loss of privacy) rather than their enjoyment of the garden and grounds.

The applicant’s application was unsuccessful; although the restrictive covenant did not benefit all of the objectors’ property, they had bought the house and garden as a single property and had occupied it as such, so, in this particular case, it was appropriate to consider it as a whole and not make a technical distinction between the parts that benefited and the parts that did not.

Practical tips:

• Practical tip – where land is burdened by restrictive covenants affecting its use, the owner can make an application for the covenant to be modified or discharged if certain criteria are satisfied (section 84 of the Law of Property Act 1925)
• Practical tip – the Upper Tribunal has discretion to modify or discharge where the covenant impedes the reasonable use of the land and the Tribunal will then consider whether, amongst other things, the covenant secures ‘any practical benefit of substantial value or advantage’ to the benefiting owner
• Practical tip – the practical benefits that could be protected by a restrictive covenant should be given a wide interpretation and there is nothing in the relevant statutory provision limiting those practical benefits to the benefited land. Although ownership of some benefitting land is necessary, the statute refers to ‘persons’ benefitting from the restriction, not specifically to their land

Interim rent – COVID-19

After protracted court proceedings that ended up in the Supreme Court in 2018, T established its right to a new tenancy of its premises in Jermyn Street, London, which it had occupied under two leases. The parties then agreed renewal terms, save for the rent payable under the new lease and the interim rent (i.e. the rent payable when a tenancy comes to its contractual termination date but is continued under the security of tenure provisions of the Landlord and Tenant Act 1954). Interim rent was payable by T from January 2016.

In relation to the rent under the renewal lease, the County Court held that this should be reduced from £220,000 (the passing rent under the previous lease) to £102,000 per year. The valuation was approached using traditional zoning methodology, rather than assuming any particular percentage reduction in value attributable to COVID19.

The interim rent was set at £160,000 per year, which took account of 3½ years when rents were close to their market peak and also the impact of COVID in the period since March 2020.

Practical tips:

• Practical tip – we are starting to see cases in the County Court that relate to the impact of the pandemic on leases that are in the process of being renewed
• Practical tip – although not binding, they give an idea of how the courts are starting to approach the issues arising out of the pandemic situation and their attempts to find a balance between the parties following an unprecedented period in modern times

Relief from forfeiture – delay

L had let a property in Leicester to T for a 20 year term. The property had a lock-up shop on the ground floor and residential accommodation above. In June 2018, T mistakenly only paid £1,500 of the £2,000 quarterly instalment of rent, leaving arrears of £500. On 1 September 2018 L’s managing agent issued an invoice for the September rent, which was due on 29 September. The invoice did not mention the arrears.

On 13 September 2018, L forfeited the lease by peaceable re-entry. At that point, T paid the arrears and indicated to the managing agents that the September rent would be paid (although, ultimately, it wasn’t).

Time passed without much further substantive contact between the parties and on 4 February 2019, L re-let the shop and the living accommodation on two separate leases to new tenants. Some three weeks later – so, five and a half months after the lease had been forfeited – T applied for relief from forfeiture. The County Court refused to grant relief due to T’s delay, even though she thought L’s decision to forfeit based on a small proportion of arrears was “harsh business practice”. T successfully appealed to the High Court, which granted relief, but this has been overturned by the Court of Appeal.

Practical tips:

• Practical tip – relief from forfeiture is an equitable remedy, available to tenants (and third parties with an interest in the property) at the court’s discretion
• Practical tip – where a lease has been forfeited by peaceable re-entry, a tenant should make any application for relief in a timely fashion and within the required timescale for the relevant court
• Practical tip – the fact that there is a time limit doesn’t mean you should wait until the eleventh hour to make an application – indeed, as relief is discretionary, the courts may well look more favourably on a tenant where they have forewarned their landlord that an application will be made and have provided a plausible explanation for the delay

Environment

Environment Bill 2021/22 Update

The Environment Bill has been proceeding through Parliament following its revival in the May 2021 Queen’s Speech. The bill’s objectives include, among other things, the introduction of a new nature recovery network, legally binding targets for air quality, nature, water and resource and waste efficiency, and the creation of an independent Office for Environmental Protection (“OEP”) to hold the government and public bodies to account and ensure compliance with environmental laws.

Whilst the Bill has been progressing, though, some of the proposals have raised controversy. Many opposition MPs and back benchers continue to argue that the protections it contains – particularly those relating to air quality targets – simply do not go far enough. There have also been criticisms of the role that has been established for the OEP, with suggestions that their ability to hold government to account will, in fact, be limited.

On the 6^th September the House of Lords passed amendments on biodiversity and climate emergency declaration, soil health and air quality. However, it seems that the government is reluctant to accept the Lords’ amendments, as such, the Environment Bill is likely to be beset by further delay.

The full timeline of the Environment Bill and updates on its progression can be viewed here.

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All Articles provided by: Freeths Professional Support Lawyers

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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.