Property Briefing Notes

Welcome to Druces LLP’s Property and Property Litigation Newsletter

You will find in this update recent case law, civil procedure and legislative changes relevant to the Property industry. Contact details for our Property and Property Litigation Partners can be found on our website at Property Partners and Property Litigation Partners, in case you would like further information on these issues. Please also take time to review our new website and, in particular, our Property and Property Litigation services pages, for more information about our property and related services.

Priority of interests over registered land: The Chief Land Registrar v Franks and others [2011]

In an important development of the law relating to registration and priority of interests in registered land, the Court of Appeal re-instated at its original date a Land Registry application which commenced in 2005 and which had been the subject of a cancellation order even though two further interests were created over the land in the intervening years. The case is of significance to anyone who relies on priority of interests over registered land as it provides for an exception to the general rule that the priority shown on the registered title is conclusive. A copy of Druces’ full briefing note can be found at Chief Land Registrar v Franks. Please contact Nick Brent for further information.

The guarantee of tenants’ obligations in leases on assignment: K/S Victoria Street v House of Fraser (Stores Management) Ltd [2011]

The ongoing saga surrounding recent attempts by the Courts to clarify the law relating to the guarantee of tenants’ obligations under leases has continued throughout 2011. The Court of Appeal’s decision in K/S Victoria Street v House of Fraser (Stores Management) Ltd and others [2011] approved in part and qualified the 2010 decision in Good Harvest Partnership LLP v Centaur Services Ltd. The Court of Appeal commented on the circumstances in which an existing guarantor can be required to guarantee an outgoing tenant’s continuing liabilities under an Authorised Guarantee Agreement and an incoming tenant’s liabilities on an assignment (transfer) of a lease. Our briefing note of that decision is at K/S Victoria Street v House of Fraser. A more recent attempt still by House of Fraser to improve its position in the litigation by amending its pleading was rejected by the High Court in December 2011. Contact Nick Brent for more information.

Bribery Act 2010 update

As reported in the June Property Update, guidance for the Bribery Act 2010 was issued earlier this year. The Act came into force on 1 July 2011 and the first conviction under this new legislation was secured in November 2011. Munir Yakub Patel, a former Court clerk at Redbridge Magistrates’ Court, Ilford, was sentenced to 3 years in prison for requesting and receiving a bribe of £500 to make a road traffic charge disappear. He was also sentenced to 6 years in prison for misconduct in public office. The case does not shed much light on how the Act may impact on businesses generally and we will report on any developments that have more relevance to businesses and the property sector as and when they arrive. However, every organisation should remain aware of the implications of this legislation. Our Bribery Act Briefing note can be accessed at Bribery Act. Please contact Nick Brent or Toby Stroh for more information.

Remedies for squatting and illegal occupation of residential premises under criminal law

There has been much comment recently in the press on the issue of squatting and the perceived lack of rights for land owners, particularly where residential premises are affected. Similar issues have arisen as a result of occupations of land and business premises by protest camps. The usual remedy for squatting and occupations of this nature is a claim for an order for possession in the civil courts. However squatting of residential premises can also constitute a criminal offence in certain circumstances and this is examined in more detail in our briefing note Remedies for Squatting. Please contact Julian Johnstone for more information.

Exercising break clauses: NYK Logistics (UK) Ltd v Ibrend Estates BV [2011]

The Court of Appeal has held that a tenant failed to give vacant possession in accordance with the terms of the break clause in its lease. A break clause may only be exercised if any conditions attached to it have been satisfied. Failure to comply with the terms of the clause will invalidate the break and the lease will continue. In this case, the tenant served a valid break notice that was conditional on the tenant delivering up vacant possession of the premises at the break date. The tenant opted to carry out its own repairs to satisfy its repair obligations under the lease, but failed to complete them before the break date. Its workmen remained in the premises after the break date completing the works. The court held that the tenant had not given up vacant possession at the break date and it had not handed over the keys to the premises to the landlord. The case emphasises that the courts continue to construe strictly contractual conditions in break clauses. Accordingly, parties should not attempt to cut corners in complying with such conditions as this can compromise the effectiveness of the break, leading to expensive disputes and ongoing liabilities. For more information, see our briefing note NYK Logistics v Ibrend Estates. Please speak to Julian Johnstone about exercising break clauses.

Interim rent on statutory renewal of business tenancies: Neale and anor v The Witney Electric Theatre [2011]

Business tenancies may be renewable under the Landlord and Tenant Act 1954 (“the Act”). The rent payable by a business tenant for the period between the end of the old tenancy and the start of the new tenancy (“Interim Rent”) is fixed by the court if not agreed between the parties. The basis of the court’s determination of Interim Rent was the subject of the Court of Appeal’s decision in this case. Once a landlord has served a s.25 notice or a tenant has made a s.26 request for a new tenancy, either may apply to the court under s.24D to determine the Interim Rent. The Court of Appeal has confirmed that the courts have a broad discretion when fixing this rent. In this case, the market rate calculated on a year to year basis was lower than the passing rent by as much as 25%. Nevertheless, the court determined the interim rent to be the same as the passing rent. See our full briefing Neale v Witney Electric Theatre for more information. Please contact Julian Johnstone or Suzanne Middleton-Lindsley if you would like more information about Interim Rent or the statutory renewal of business tenancies.

Modification and discharge of restrictive covenants: George Wimpey Bristol Ltd v Gloucestershire Housing Association [2011]

Restrictive covenants affecting land may be modified or discharged on application to the Lands Tribunal under s.84 of the Law of Property Act 1925. In this case, the Lands Tribunal decided that where a developer had carried out development work on land, knowingly in breach of a restrictive covenant to which the land was subject, it would take the developer’s deliberate breach into account in exercising any discretion it had in the developer’s subsequent application for the modification or discharge of the restrictive covenant. Property Developers should therefore avoid taking any action which might constitute a breach of a restrictive covenant in advance of any application to the Lands Tribunal, to avoid prejudicing the application. See our briefing note George Wimpey Bristol v Gloucestershire Housing Association for more information. Please contact Paul Goward or Suzanne Middleton-Lindsley if you need further information about property development issues.

Insolvency: rent as an expense in the administration of a corporate tenant

The question as to whether rent due to a landlord can be recovered as an expense of the administration of a corporate tenant (and therefore ahead of most other creditors) or whether it remains recoverable only as an unsecured debt is one that has generated significant litigation over the years. Richard Baines examines the issues in our briefing note Rent as an expense in administration.

Construction: “Pay When Paid” clauses

Originally the purpose of ‘pay when paid’ clauses in the construction industry was to absolve a contractor from liability to pay its subcontractor until it had been paid by the employer. The effect of such a clause was to allow the contractor to pass the risk of default by the employer down the construction chain. The use of these clauses created havoc in the construction sector in the late 1980s and early 1990s and as a result the law was changed to reduce their scope. The change to the law was achieved by the effective prohibition of ‘pay when paid’ clauses by s.113 of the Housing Grants, Construction and Regeneration (HGCR) Act 1996. The only exception to this prohibition is a ‘pay when paid’ clause applying in the event of an ‘upstream’ insolvency in a construction contract. Richard Baines considers the position now in our briefing note, Pay when paid, first published in The In-House Lawyer magazine in September 2011.