Tarmac Real Estate Bulletin – Summer 2023

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

This quarter, we look at some recent Landlord and Tenant cases dealing with break clauses and reserved rights and a case dealing with the discharge of a restrictive covenant. We have included links to Freeths Blog articles looking at issues with acquiring public open space, biodiversity net gain and the extent of the public highway.

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Property

Landlord & Tenant – break notice

A tenant had a 21-year lease of a retail superstore. There was a break right entitling the tenant to terminate the lease on or before 11 February 2023 (the break date), provided it gave no less than six calendar months’ notice in writing.

The original tenant served the break notice in December 2018, so well in advance of the six month notice period. In 2020, the lease was assigned to an assignee, who was aware the break notice had been served but who intended to negotiate a new 15-year lease with the landlord.

Just a few days before the assignment completed, it became apparent that the landlord was negotiating to grant a lease of the store to a third party. The assignee served a notice under section 26 of the Landlord & Tenant Act 1954, requesting a new lease. The landlord argued this was invalid, because the break notice had already been served and the lease would come to an end on the break date, meaning the assignee would have to move out.

The assignee tried various technical arguments to try to persuade the court that the break notice was invalid, including that it had been served ‘too early’, but the court did not agree. It felt the lease was very clear on the minimum notice period and did not feel the need to imply any terms that there should be a maximum period.

Practical tips:

• Practical tip – it is common for leases to specify a minimum notice period for service of a break notice, less so for them to set out a maximum period or ‘window’ for service. This is unlikely to change following this case

• Practical tip – there can be some benefit in serving a break notice well in advance of the break date, as it provides certainty between the parties at the time, but problems can arise where the lease is assigned after the break notice has been served
• Practical tip – assignee’s taking on leases in these circumstances should ensure the landlord is tied in to any new arrangement, such as the grant of a reversionary lease, so that they don’t find themselves in the position of having to move out before they intended!

Landlord & Tenant – reserved rights

A tenant lived in a first floor flat in a building that comprised one other flat above his, and commercial space on the ground floor. When the tenant bought the flat (for a price of £574,950), the ground floor was used by an estate agency.

The lease reserved rights to the landlord to carry out works to the structure of the building so as ‘to carry out any development of whatever nature upon the Building’. This was subject to a proviso that any such works did not diminish the value of the tenant’s flat.

Shortly after the tenant bought the flat, the estate agency moved out and a prospective new tenant obtained planning permission to change the use of the ground floor to a bar/restaurant. It carried out works to convert the ground floor into the ‘Brick and Liquor’ bar.

The tenant was not happy because of the noise and fumes from the bar and eventually sold the flat for £470,000. He then brough various claims against the landlord, including for breach of contract and claimed damages for the diminution in value of the flat due to the presence of the bar – he contended he would’ve been able to sell for £575,000 if the ground floor was still being used as an estate agent or similar office use.

In a slightly surprising decision, the court found that the proviso to the landlord’s right to carry out works to the building operated as a contractual obligation on the landlord not to do anything which would diminish the value of the flat, rather than just a limitation on what the landlord could do.

Practical tips:

• Practical tip – commercial and residential leases of part usually reserve rights to landlords to allow them to carry out works to the rest of the building
• Practical tip – these rights will be caveated to provide some protection to tenants
• Practical tip – Leases also contain – albeit limited – express covenants by landlords to allow ‘quiet enjoyment’ of the premises

Restrictive covenants – discharge

A property owner (S) owned a house with a large garden to the side. The property was subject to a restrictive covenant imposed in 1970 that it could only be used for a single private dwellinghouse. S wanted to build a second house on the garden land, and applied for the restrictive covenant to be discharged entirely. Her neighbours, B, objected on the basis that a second house would impact on their privacy and lead to them feeling ‘hemmed in’. They also claimed there would be a sizeable reduction in the value of their house.

The Tribunal found that S’s proposed development was a reasonable use of her land, and it was common ground that the covenant impeded this use. The Tribunal also felt that the covenant plainly secured practical benefits to B, so the last question to be determined was whether those practical benefits were of substantial value or advantage. This is where things got tricky – S had applied for a blanket discharge, which made it difficult to assess the impact on B’s property. S didn’t have a current planning permission and discharging the restriction would leave B liable to whatever planning permission S could obtain. This made it impossible for the Tribunal to assess the value of any compensation that might be due to B. S had failed to jump the ‘substantiality’ hurdle and her application was refused.

Practical tips:

• Practical tip – we usually see applications for discharge or modification of restrictive covenants; it’s unusual to see an application for a blanket discharge
• Practical tip – this case shows the difficulties for an applicant who doesn’t apply for both discharge and modification
• Practical tip – applicants in this situation need robust valuation evidence and clear development proposals, so the impact of the discharge can be quantified

Articles provided by Freeths Professional Support Lawyers

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Real Estate Blogs

Please also note the latest developments referred to in the following blogs:

• Public rights hiding in open spaces…
• Countdown to BNG in November 2023
• The extent of the adopted highway

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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.