Real Estate Bulletin: Summer 2015

Welcome to the Summer edition of the Real Estate Bulletin.

The quarter we have case law updates on

Business rates - refurbishment

Contracts - fraudulent misrepresentationDevelopment - defective premises

Development - procurementEasements - right of way and parkingImplied surrender

Landlord's intention to redevelopPlanning - retrospective planning applicationsPlanning - use classes

VAT - transfer of a going concern

Case Law Update

Business rates - refurbishment: SJ & J Monk v NewbiginKey points:

Where a commercial property is empty, its rateable value is based on the amount of annual rent reasonably obtainable for the property

Various assumptions are made, including that the property is in a reasonable state of repair save for any repairs a reasonable landlord would consider to be uneconomic

The assumptions apply irrespective of the state the property is actually in

Vacant properties will not automatically be listed with a nominal rateable value

Implications:

For M, no reduction in business rates. For the VOA, a re-writing of the Rating Manual. For property owners generally, a reminder that just because a building is undergoing a major refurbishment, it doesn't mean its rateable value will be reduced. Each case will turn on its own facts, particularly in relation to the nature and extent of the works being done - whether they can be classed as repairs and whether a reasonable landlord would say they are uneconomic

Contract - fraudulent misrepresentation: Morrell v Stewart

Key Points

Exclusion clauses in sale contracts do not get a seller off the hook for making a fraudulent misrepresentation

But it's always a good idea to have a survey done before exchanging contracts to buy a property!Implications:

Contracts usually contain a clause that a buyer accepts the property in its physical condition at the date of exchange. This is in line with the 'buyer beware' principle and seeks to exclude or limit a seller's liability in relation to the state of a property on the basis that a prudent buyer would have a survey carried out. However, a seller cannot exclude liability for statements made pre-contract that are fraudulent - ie where the seller makes representations knowing them to be untrue, not believing them to be true or is reckless as to their truth. Regardless of the fact that S thought the problems had been resolved, the discussions and correspondence should have been disclosed. That said, M could've saved itself a lot of time and money by having a survey done in the first place

Development - defective premises: Rendlesham Estates Plc v Barr LtdKey points:

As well as liability under a contract and for negligence, a housebuilder may be liable to a buyer under the Defective Premises Act 1972The Act imposes particular duties on those doing work in connection with the provision of a dwelling

Implications:

As well as clarifying the application of the Act to flats and common parts, as opposed to houses, the court made a number of other points that may be of interest to housebuilders. For example, a dwelling may be unfit for habitation even though the defect that makes it so is not apparent at the time of completion. Note also that fitness for habitation means habitation by all classes of occupier including babies and children, pregnant women and those suffering from common ailments or allergies - there is no 'reasonable occupier' test here.

The decision suggests that the application of the Act is wider than previously thought and raises another potential head of liability for housebuilders who, if faced with similar claims, should look to the legal arrangements with their contractors and professional team

Development - procurement: R (Gottlieb) v Winchester City Council

Key points:

European procurement rules apply to public works contracts, including development agreements for town centre regeneration projects

The rules are designed to promote competition, ensure transparency and equality of opportunity for developers who wish to be involved in such schemes

There is a particular process to be followed in terms of advertising contracts and failure to do so can set much-needed regeneration back

Implications:

WCC now has two options - put the scheme out to tender or rethink the whole project. Either way, Silver Hill won't be getting regenerated any time soon.

There are lessons here for local authorities, but it's an important decision for developers too. Even if the original agreement had been properly procured, the variations were so significant that they effectively created an entirely new agreement, which also had to be properly procured. The fact that the original agreement expressly anticipated future variations didn't help either. Parties should not just proceed without reference to the overarching freedom of competition principles that govern these types of contract.

H will of course be able to bid for the contract if WCC do decide to tender it in its current form, but they will be in the same position as any other potential bidder and the work done to date to formulate the scheme has been lost.

One other interesting point about this case is the status of the applicant, G. There had been uncertainty about whether residents would have the standing to bring this sort of claim. The decision indicates that they do. Whilst this increases the potential for challenge, the judicial review process is long-winded and expensive so this may act as a deterrent to all but the most determined campaigners

Easements - right of way and parking: Bennett v Winterburn

Key points:

It is possible to acquire legal rights over adjoining land by long-user (prescription)

Use must be without force, without secrecy and without permission

There are steps landowners can take to prevent such rights arising

Implications:

Landowners need to keep a close eye on who is using their land for unauthorised purposes. There are various physical steps that can be taken to prevent rights arising, including erecting barriers. As we can see from this case, signs may not always be foolproof, particularly if they are too specific. As it's difficult to list everything possible that is prohibited, it might be easier to grant a temporary consent to park or to access adjoining buildings, reserving a right to withdraw that consent at any time. However, this also needs monitoring as who agreed what and with whom can be forgotten over time. The good news is it's not necessary to go as far as issuing trespass proceedings against an encroaching neighbour, although clear attempts to prevent unauthorised use, possibly followed up with correspondence, may help

Landlord & Tenant - implied surrender: Obichukwu v London Borough of Enfield

Key points:

Leases can be surrendered by operation of law

This means there's no paperwork, but the actions of the parties are taken to indicate that a lease has come to an end

If a lease is surrendered in this way, tenants could lose out on valuable rights

Implications:

Whilst the council came in for some criticism, and the decision caused the Tribunal 'extreme discomfort', its behaviour was found not to be an abuse of process. O had not been legally represented at the point she offered to give up her lease and therefore had not appreciated that she was also giving up any rights that attached to her interest. Tenants should be careful not to act in a way that brings about a surrender by operation of law such that preceding rights are lost.

It is safer to enter into a written agreement to surrender that preserves any such rights, but remember that where a tenant has the protection of the Landlord & Tenant Act 1954, a statutory notice procedure has to be followed in order to make the agreement effective.