We are pleased to bring you the second edition of Druces’ property e-bulletin.
Aimed at a property professional/adviser readership, our intention is to bring you a regular collection of interesting recent property and planning focused news items. The topics covered will be broad ranging, with each article a bite-sized consideration of some of the sector’s most topical issues.
We would welcome feedback on the content covered below and any comments you may have on the future focus of this e-bulletin.
I look forward to hearing from you.
Nicholas Brent, partner and head of Druces’ property team.
Be careful what occupation rights you grant
The law is replete with cases in which two parties to an agreement differ in their interpretations of what they had agreed. Such disagreements can have profound implications for landlords as there are many legal rights attaching to the occupation of property.
A recent case illustrates the point. A social landlord wished to make sure that a residential home for the elderly, which was empty, was protected from occupation by squatters or from damage. In order to achieve this, it appointed ‘guardians’ who lived on the premises, though with access only to a small portion of the property. The case was brought by one of the guardians who had been allocated the use of two rooms (which could be locked) and access to communal kitchen and bathroom areas.
The occupation was by way of ‘licence’, which gave the guardian the right to occupy the property, but not any exclusive rights over any part of it.
When the council wished to take possession of the property again, it issued the guardian with a notice to leave. He refused, arguing that his terms of occupation made him a tenant under an ‘assured shorthold tenancy’, a form of tenancy which gave him legal rights, including the right not to have the tenancy terminated at short notice.
When the County Court analysed the terms of his occupation, it concluded that the agreement was not inconsistent with the grant of exclusive possession of the property. The landlord’s rights of entry were similar to those granted in leases so that landlords can undertake repair and maintenance work. The fact that the agreement was described as a licence could not alter the legal reality.
The guardian was therefore an assured shorthold tenant, with the protection against eviction that such tenancies provide.
Granting any rights over property should be done with great care. Drafting labels will not help if the contents / accuracy of the drafting do not match up to the label. This case particularly points up the difficulty in the lease / licence distinction. If a document has the characteristics of a lease then calling it a “Licence” doesn’t help…”
Court of Appeal applies commercial clarity to contract terms
Large construction or maintenance projects rarely proceed without at least a few surprises and the contracts for such projects are generally drafted with such eventualities in mind. One often-used technique is to use minimum performance level agreements, which set out performance targets that must be reached. These are often accompanied by compensation clauses to apply where the performance targets are not met.
It is essential to draft such clauses with great care so that if performance is below the targets set, the situation is clear and the question of the appropriate compensation is an easy one to answer. Failure to do so can cause significant disputes to arise.
When work on a long-term maintenance and repair contract between a council and a contractor fell into arrears, a dispute arose over the performance measures specified in the related ‘key performance indicator (KPI) framework’. These did not tie in precisely with the minimum defined performance levels as specified in the contract, although the contract did have three examples in which the minimum performance standard was defined as being ‘3 per cent below the KPI’.
When the service delivery failures became more than the contracting council would accept, it terminated the contract. The contractor claimed that the termination was invalid because the KPI framework contained ‘illustrations’ and was insufficiently precise to justify the termination of a long-term contract.
The case eventually landed in the Court of Appeal, which took a commercial approach. The contract was clearly intended to be terminable if minimum acceptable performance standards were not met. The performance standards set out in the contract had to be capable of enforcement and the failure to specify the precise performance standards, whilst regrettable, could not frustrate that. Accordingly, the termination was valid.
The Court of Appeal is an expensive place to decide issues such as this. When drafting contracts, it is far better for all concerned if care is taken to remove areas of potential dispute. In particular, where two parts of the same document address the same issue, it is important to ensure that they address it consistently.
Landlord faces six-figure bill for notice to quit error
Correct service of legal documents may seem like a technicality to non-lawyers, but it is of crucial importance and should only be entrusted to professionals. In one case that resoundingly proves the point, a landlord who served a notice to quit on the wrong address was left facing a six-figure damages and legal costs bill.
The case concerned an agricultural tenancy of land. The lease provided that either party could serve any notice on the other at a particular address or such other address as had previously been notified in writing. The notice to quit was served on the address specified in the lease, although the tenant had given notice in writing that he had moved nearly six years previously to a new home.
The tenant was dispossessed of the land after the landlord let it to another tenant. Having not received the notice to quit, he was taken by surprise and launched proceedings. However, in initially dismissing his claim, a judge found that, on a literal reading of the lease, the notice had been validly served on the specified address and concluded that the lease had thus been validly terminated.
In upholding the tenant’s challenge to that decision, the Court of Appeal found that the judge had erred in his interpretation of the lease. His reading of the document would lead to a surprising conclusion that would leave the door open to less than scrupulous landlords serving documents on tenants’ original addresses in the knowledge that they had moved out.
As a matter of commercial common sense, the landlord and tenant must have intended that the new address, once duly notified in writing, would supersede the original address given in the lease. In the circumstances, the lease had not been validly terminated and the landlord was ordered to pay the tenant £31,500 in damages and the six-figure legal costs of the action.
Courts often take a commercial view in decisions such as this but proper advice and adherence to the provisions in the document should ensure that these issues never get near a Court for resolution. In particular many documents, even those which appear simple on the face of them and which are not lengthy or overly complex, often have quite technical “notice service “provisions”. A proper analysis of those provisions in this case would have saved everyone a deal of money.
SIPPs and your business property
The Self-Invested Personal Pension (SIPP) was introduced in order to give people far more control over how their pension pots are invested and have proven to be very popular with pension savers.
One common use of the SIPP in a business context is to sell business premises to the SIPP. Having a property in a pension fund means that any growth in the value of the property will accrue tax free. Furthermore, a market rent paid to the SIPP as landlord will not be taxed in the fund but will be an allowable deduction for Income or Corporation Tax by the payee. The accumulated surplus in the SIPP will be in a ‘free of tax’ environment.
If the building is ‘opted for VAT’, the SIPP can register for VAT and reclaim the VAT on the purchase and subsequent expenditure, albeit with an extra compliance cost as a result of the VAT registration.
There will also be costs associated with property ownership and management.
However, there can be disadvantages in certain circumstances and having a trading property in the hands of what is, in effect, a third party might add complexities to the sale or restructuring of a business. If such a sale goes forward without the need for the property, a void period could lead to the SIPP having a deficit and requiring additional funding from the SIPP members.
Properties tend to represent quite large sums and if the need to sell arises, it can sometimes prove difficult to accomplish a satisfactory sale expeditiously – and the cost of selling property is relatively high.
Putting a property into a SIPP should never be undertaken without careful consideration of all the potential issues. The best solution for tax purposes is not always the best solution in the wider commercial context.
Landlord’s motivation for work not in point, rules court
A recent case decided by the High Court will (if not overturned on appeal) have potential implications for some commercial tenants seeking renewals of their tenancies.
It involved a dealer in textiles that occupies areas in the ground and basement floors of London’s Cavendish Hotel and which wishes to renew its tenancy relying on the security given by the Landlord and Tenant Act 1954, which gives such tenants the right to renew their tenancies except in certain circumstances.
One of the circumstances in which a renewal can be refused is if the landlord wishes to demolish or reconstruct the premises occupied by the tenant. The landlord (which runs the hotel) claimed that it did and it could not carry out the works it wishes to undertake without gaining possession of the tenanted premises.
What made this somewhat different from the norm was that it appeared that the landlord would not have wanted to carry out the work it used to justify the termination of the tenancy if the tenant had agreed willingly to vacate the building. The tenant claimed that the landlord’s motivation was purely to evict it and therefore the landlord should not be allowed to terminate the lease.
The High Court’s judgment was that there was one core issue: did the landlord really intend to carry out the work? That alone would decide the matter. The landlord’s motivation for doing the work was not in point.
The case isn’t quite over. The County Court has to decide on the extent to which the work specified might be able to be done leaving the tenant in place and also the timescale in which the work should be commenced.
However, it is quite feasible that landlords seeking to remove protected commercial tenants may, if the premises offer a financially suitable redevelopment opportunity, use the works primarily as a device to remove an unwanted tenant.
Student bedsits are not “separate dwellings”
In a decision of great importance to landlords of student accommodation, a tribunal has found that bedsits with communal facilities are not separate dwellings. The ruling meant that the tribunal had no power to consider an attempt by a group of students to have their service charges fixed by law.
The case concerned an old fire station that had been converted into student digs. It contained 96 bedsits, most of which had en suite shower rooms. In common with most student accommodation, tenants had access to communal living areas and kitchens, and only their bedrooms were fitted with locks.
A number of students who lived in the block applied to have their service charges fixed at a reasonable level under the Landlord and Tenant Act 1985. If the Act applied to them, service charges could only be levied in respect of sums reasonably incurred for works or services of a reasonable standard.
The landlord would also be required to provide information to tenants and consult with them before major works were carried out. There would be time limits set on the recovery of service charges and tenants would have access to the tribunal system for the determination of disputes. All those protections would, however, only be available if the bedsits were ‘separate dwellings’ within the meaning of the Act. The First-tier Tribunal (FTT) found that they were.
In ruling on the landlord’s challenge to that decision, the Upper Tribunal found that in order to qualify as dwellings, the bedsits did not have to be someone’s home. However, in upholding the appeal, it found that the extent of the communal facilities meant that the bedsits were not occupied as separate dwellings. The FTT thus had no jurisdiction to consider the tenants’ application.
The decision in this case was made as a matter of fact, so is unlikely to be overturned. It has implications for anyone considering converting or building premises for multiple occupation. This is another manifestation of problems that can arise if someone gives a label, or someone seeks to attribute a label, to something/ a document which is not supported or justified by the underlying law – see the earlier comment on the lease / licence distinction.
Public confidence in the planning system demands consistency
Public confidence in the planning system demands consistent decision making. The High Court made that point in ruling on a case in which two very nearly identical applications to build a supermarket were respectively refused and granted by the same local authority within less than two years of each other.
The first application to build a store on the edge of a market town was refused in 2014 on the basis that it would harm the viability and vitality of the town centre retail area. However, in 2016, the would-be developer lodged another application in respect of the same site with only very minor modifications.
After the second application left the local authority’s planning committee deadlocked, it was referred to the full council for determination. Consent for the development was granted by a majority, contrary to the advice of the council’s own planning officers. A company that ran a supermarket in the town centre launched a judicial review challenge to that decision.
In overturning the permission, the Court noted that the relevant council resolution had made no reference whatsoever to the impact of the development on town centre retailers. The council had been obliged to give at least some reasons for disagreeing with its officers and had failed to do the minimum that was required.
The Court noted that the only differences between the earlier – rejected – planning application and the approved one were that the proposed store’s gross floor area would be increased by 14 square metres; the canopy over its main entrance would be enclosed and the number of car parking spaces would be reduced from 123 to 121.
Lone objector successfully challenged house development three times
Challenges to planning decisions are dealt with by judges every day and, with a little determination and the right legal advice, there is no reason why an objection made on reasonable grounds should not succeed. In one case, a committed objector managed to overturn planning permissions granted for a residential development no fewer than three times.
The case concerned plans for a two-storey home in the Green Belt to which a local resident fiercely objected. The first time the local authority granted planning consent for the development, its decision was overturned by the High Court because it had failed properly to apply Green Belt policy. Following reconsideration, a second permission was granted, but that was likewise quashed at the objector’s behest because the council had failed to abide by a policy in the area’s local plan.
After considering the proposal for a third time, the council again granted consent. Its decision, however, was challenged afresh by the same objector. In overturning the consent, the Court found that the council had given inadequate reasons for its conclusion that the house was acceptable as limited infilling within a village. The ruling, yet again, put the planning process back to square one.
It is possible for a third party objection to quash a planning permission, though the abilities of an applicant’s planning advisers and planning officers mean that such a case is generally an exception to the rule. Nevertheless, this case shows that it can occur. The more usual situation is seen in the article below.
High Court upholds planning consent for new homes in countryside
The voracious need for more new homes has placed ever increasing pressure on the countryside surrounding major urban centres. In one case that clearly illustrates the issue, the High Court opened the way for construction of 220 new homes on agricultural land despite fierce objections from existing residents and the local parish council.
The borough council within whose area the 8.6-hectare site lay granted consent for the development after the Secretary of State for Communities and Local Government found that a full environmental impact assessment was not required and refused to ‘call in’ the proposal for his own determination.
In challenging the Secretary of State’s ruling and the subsequent grant of consent, the parish council argued that both decisions had ignored concerns expressed by the county council in respect of the cumulative impact of traffic generated by the development on trunk roads serving a substantial nearby town.
In rejecting those arguments, however, the Court found that the Secretary of State was entitled to take the view on the information before him that the development would have no significant environmental impact. His conclusion that any increase in traffic would only be of local effect represented a legitimate exercise of his planning judgment. The planning permission was thus lawful.
Detailed knowledge of planning law and national and local planning policy helps assure that the likely objections are understood and their possible impact evaluated early in the process, controlling the risk attached to any development proposal.
Compulsory purchase and surplus land – Court of Appeal test case
The general rule as established in the Crichel Down case is that where land that has been acquired compulsorily is to be sold, it should first be offered to the original owner, but there are exceptions to this. Large infrastructure projects often require the compulsory purchase of swathes of privately owned land by public authorities – but what happens if land so acquired turns out not to be needed after all? The Court of Appeal tackled that important question in the context of London’s Crossrail development.
Using powers under the Crossrail Act 2008, Crossrail Limited had compulsorily acquired extremely valuable land in Central London on which it intended to construct a ticket hall. Some of the land was surplus to requirements and planning permission had been obtained for the site’s residential development.
Under the terms of the relevant land disposal policy, the company was required in certain circumstances to give former owners of the surplus land first refusal if they wished to buy back their property at market value. The former leaseholder of a flat in a block that had been compulsorily acquired and demolished had expressed an interest in exercising that right. However, he was informed by the company that the policy did not apply to him and that the site would be placed on the open market.
The policy stated that if more than one former owner put in competing bids for a site, the land concerned would be disposed of on the open market. In deciding that that provision applied in this case, Crossrail pointed out that expressions of interest had been received from two other former owners. The leaseholder had since formed a consortium with the other interested parties but his judicial review challenge to the company’s decision was nevertheless rejected by a judge.
In dismissing his appeal against that ruling, the Court found that the judge was entirely correct in his interpretation of the policy. Given the clearance of the site, none of the former owners would be stepping back into a property of remotely the same character as that which they had previously owned. If granted a right of first refusal, they would have the opportunity to acquire parcels of land that did not in any way correspond to the size and situation of their former holdings. A straightforward reading of the policy supported the company’s case that it was entitled to dispose of the entire site at the best price that could be obtained.
This e-bulletin was first posted on 25 October.