Tarmac Real Estate Bulletin – Spring 2023

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

This quarter we look at cases and set out some practical tips on relief from forfeiture, service charge certification and restrictions on user. We’ve also included a planning case on whether the wording of a condition required the roads on a development to be dedicated as public highway.

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Landlord & Tenant – relief from forfeiture

A tenant had a 25-year lease of restaurant premises, and an option to take a new lease on the same terms. The option could be determined if any of the forfeiture events specified in the lease occurred, including rent arrears.

During the pandemic, the tenant fell behind on its rent and the landlord served notice to terminate the option, although not to forfeit the lease. The parties reached a settlement over the rent arrears and the tenant successfully applied for relief from the termination of the option.

The High Court decided to award relief to HBL on the basis that the option created an equitable interest in the property and that it would be unconscionable for RNOL to retain the benefit of terminating the option, particularly when it had not sought to forfeit the lease.

Practical tips:

• Practical tip – it is common for tenants to have a contractual option to renew a lease at the end of the term – this case gives useful guidance on the nature of the interest an option gives a tenant
• Practical tip – the courts seem willing to expand the scope of proprietary interests tenants may have in addition to the lease itself

 

Landlord & Tenant – service charge certification

A tenant operated retail premises in Liverpool under a lease. The lease contained the usual tenant covenant to pay service charge quarterly on account and each year, the landlord was required to provide a certificate showing the total amount of the cost, and the sum payable by the tenant. The lease provided that ‘in the absence of manifest or mathematical error or fraud’ such certificates were ‘conclusive’.

In the last year of the lease term, the tenant was charged over £400,000 in service charge – eight times what it had been charged in the previous year – and sought to argue that some of the expenditure set out in the landlord’s certificate was not within the scope of the service charge as defined in the lease.

The dispute went all the way to the Supreme Court, which has held that the certificate was conclusive as to the amount the tenant had to pay, but that did not preclude the tenant from disputing its liability to pay.

Practical tips:

• Practical tip – leases often provide that service charge certificates are conclusive, unless there is a mathematical error or fraud
• Practical tip – fairly drafted service charge provisions will give tenants the ability to challenge service charge certificates or at least ask for further information on both the amount and the nature of the costs that are included, and this is something tenants should be mindful of when negotiating new leases
• Practical tip – however, in existing leases, there may be no ability to make a meaningful challenge

 

Restrictive covenants – leasehold

A lease of premises in Great Portland Street, London contained a tenant covenant restricting the use of the premises to a shop and showroom or, provided it obtained the landlord’s consent, another business use within Class B1 of the Town and Country Planning (Use Classes) Order 1987.

The tenant moved out of the premises and tried to market them for assignment or subletting, but only received interest from occupiers in the medical sector, and various attempts to get the consent of the landlord failed. The tenant applied to the Upper Tribunal to get the user covenant in the lease modified on the basis that it impeded a reasonable use of the premises. The modification it sought would also permit, with the landlord’s consent, use for the provision of medical or health services and office space.

The tenant was successful. The Tribunal considered that the lease contained sufficient general provisions for the landlord to be able to maintain control of the premises, and these would apply equally to medical or health uses (this was the landlord’s main objection to the modification) and would not put the landlord in breach of the terms of its own headlease.

Practical tips:

• Practical tip – we usually see applications for discharge or modification of restrictive covenants being made in relation to freehold land, the statutory procedure is also available for tenants of leases for more than 40 years, where more than 25 years have expired
• Practical tip – the grounds – and therefore the hurdles to be cleared – are the same whether the application is made in relation to freehold or leasehold land
• Practical tip – this is an interesting case in terms of the considerations the Tribunal has to take into account in a leasehold context

 

Planning – dedication of highway

A developer had outline planning permission for a development, which was subject to a number of planning conditions. One of the conditions was that ‘the proposed access roads…shall be constructed in such a manner as to ensure that each unit is served by a fully functioning highway, the hard surfaces of which are constructed to at least basecourse level prior to occupation and…use’.

The developer applied for a certificate of lawful use or development confirming that the formation and use of roads as private (rather than public) access roads was lawful, but the council refused to grant the certificate.

The developer argued that the condition simply related to the physical manner and timing of the construction of the roads and did not require them to be dedicated for public use. The matter has gone all the way to the Supreme Court, which has dismissed a final appeal by the council. The wording of the condition did not require dedication of the roads as public highways, and even if the condition could be interpreted in this way, it would have been unlawful anyway.

Practical tips:

• Practical tip – when interpreting planning conditions, the courts will consider what a reasonable reader, equipped with some knowledge of planning law and practice, would understand the words to mean when looking at the condition in the context of the other planning conditions and the planning permission as a whole
• Practical tip – there is an important difference between a planning condition (imposed unilaterally) and a planning obligation (entered into by a developer or landowner voluntarily)
• Practical tip – the appropriate way to ensure a landowner grants public rights of way over land is by agreement, either under section 106 of the Town and Country Planning Act 1990 or under section 278 of the Highways Act 1980. Alternatively, a local planning authority could exercise its compulsory purchase powers and pay compensation to the landowner

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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.