Tarmac Real Estate Bulletin – Summer 2022

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

This quarter, we look at a couple of Landlord and Tenant cases dealing with terms that can be included in a renewal lease and another case where a landlord didn’t deal with a tenant’s application to assign in accordance with its statutory obligations. We also look at recent cases dealing with restrictive covenants in the context of development.

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Property

Landlord & Tenant – consent to assignment

A tenant had a long lease of a flat on Kensington Park Road. The lease required the tenant to obtain the landlord’s consent to assign. On various occasions, starting in October 2020, the tenant had asked the landlord for consent to assign the lease. In February 2021, the tenant had received an offer of £3.25M for his flat, but that fell through because the landlord didn’t respond to the request for consent to the assignment. In October 2021, the tenant received another offer for the flat, this time for £3.2M.

In addition to the delay, the landlord employed other stalling tactics such as commencing forfeiture proceedings (which were not successful but which did lead to the proposed sale for £3.25M falling through) and requesting financial references for the other prospective purchaser, even though they were a multi-billionaire member of the Oppenheimer family (founders of the De Beers diamond mining company)!

In January 2022, the tenant applied for a declaration that L had unreasonably withheld consent, and the High Court granted the declaration, along with an award of damages for the losses arising from the landlord’s unreasonable behaviour.

Practical tips:

• Practical tip – although this dispute arose in the context of a residential lease, which unusually had a covenant against assigning without consent, the principles equally apply in a commercial setting
• Practical tip – where a lease permits the tenant to assign with the landlord’s consent, statute dictates that consent cannot be unreasonably withheld
• Practical tip – landlords are also under other statutory duties, including to give consent within a reasonable time and to give written notice of the decision
• Practical tip – if a court finds the landlord has behaved unreasonably, the tenant can go ahead and assign without obtaining the landlord’s consen

 

Lease renewals – energy performance covenants

A tenant occupied commercial premises at an industrial estate in Rotherham under a 10-year lease. The landlord started the renewal process before the expiry of the contractual term and the parties managed to agree many of the terms of the renewal lease.

One of the things the parties couldn’t agree on was the alterations clause, and in particular the interplay of that clause with the energy performance of buildings regime. The landlord wanted to restrict the ability of the tenant to carry out alterations that would lead to the property having an energy performance rating of ‘E’ and wanted the tenant to indemnify the cost of having to obtain a new EPC if such alterations were made. The landlord also wanted a clause requiring the tenant to maintain the current energy rating, to hand the property back with the same energy rating and carry out works to restore the rating if it fell below the then current level.

The court did not agree to the additional restriction on alterations, nor to the requirement to indemnify the cost of obtaining a new EPC, but it was prepared to include a clause requiring the tenant to return the property with the same energy rating.

Practical tips:

• Practical tip – tenants who have security of tenure are entitled to a new lease at the end of the contractual term
• Practical tip – either the landlord or the tenant can start the renewal process, and the parties will seek to agree the terms of the renewal lease
• Practical tip – if the parties cannot agree, one or other of the parties must apply to the court for determination of any disputed terms
• Practical tip – the starting point for the court when determining certain ‘other terms’ (i.e. not extent of property, duration of term or level of rent) is to look at the terms of the existing lease
• Practical tip – the burden of persuading the court to depart from those existing terms falls on the party proposing the changes and any changes need to be fair and reasonable

 

Restrictive covenants – nuisance or annoyance

D and S owned neighbouring properties on a residential estate in Wimbledon that was subject to a building scheme. One of the covenants imposed under the scheme was a fairly standard covenant not to do anything on the property that was an annoyance, nuisance or disturbance to the other residents.

S wanted to build a two-storey extension and obtained planning permission, despite objections from D and other neighbours. Knowing that the same neighbours would object to the extension on the basis that it breached the nuisance covenant, S applied for a negative declaration from the High Court that the extension would not breach the covenant.

The judge in the County Court granted the declaration, but D and the other neighbours appealed on the basis that the judge had applied the wrong test – i.e. would a reasonable person living in D’s house be annoyed or aggrieved by the extension? Instead, D argued there may be situations where the reasonable hypothetical person would not be annoyed, but someone else might be and therefore the activity at issue should still be prohibited. The judge was not persuaded!

Practical tips:

• Practical tip – common law nuisance provides an element of protection, and remedies, for aggrieved landowners
• Practical tip – express covenants, given in deeds, not to cause ‘nuisance or annoyance’ are much wider and bring into scope a range of activities that wouldn’t be prevented or remedied by common law nuisance
• Practical tip – the long-established test for deciding what amounts to an annoyance is what would a reasonable, sensible person find annoying

Practical tip – whilst we see a lot of cases on restrictive covenants, they are mainly in the context of applications to modify or discharge them, so it’s interesting to consider a commonplace covenant which could – in the right circumstances – be another line of attack for those seeking to prevent development

 

Restrictive covenants – planning permission

C owned land comprising a nine-acre field with stabling. In early 2020, C obtained planning permission for construction of a manège, associated landscaping, planting and an access way from the existing stables and parking area.

H owned a farm that is immediately southeast of C’s property. H had objected to the planning application, on the basis that it would spoil the view, damage the amenity and character of the rural area and would have an adverse impact on privacy. H’s farm had the benefit of a covenant imposed in 2003 restricting the use of C’s field to the grazing of sheep and horses, and permitting the construction of stables on the far boundary only.

C applied to modify the covenant so that C could implement the planning permission, and H objected to this as well, arguing that the purpose of the covenant was to preserve the rural and agricultural identity and character of H’s farm and the surrounding area. The Upper Tribunal agreed with H and refused to modify the covenant. The purpose of the covenant could still be achieved and weight was given to the fact that H was the original beneficiary under the covenant.

Practical tips:

• Practical tip – the Upper Tribunal has the power to discharge or modify restrictive covenants, provided certain conditions are met, under section 84(1) of the Law of Property Act 1925
• Practical tip – where the applicant relies on the ground in section 84(1)(aa), they must prove that the continued existence of the covenant would impede some reasonable use of the land
• Practical tip – the Tribunal will consider whether the existence of the covenant secures a practical benefit of significant value or advantage to the beneficiary, and whether monetary compensation would be adequate
• Practical tip – whilst obtaining planning permission goes towards showing some reasonable use of the land, it doesn’t negate any restrictive covenants that burden the land and this case is a reminder that applicants will need to jump both hurdles

Article 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.