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Property e-bulletin – Issue 3

We are pleased to bring you the third 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


Protections against forfeiture still endure even for tenants in default

Landlords are entitled to take back possession of their properties from tenants who breach the terms of their leases. However, as one High Court case showed, tenants have a right to expect that statutory procedures are followed to the letter before they are put out on their ear.

The freehold owner of a pub served a default notice on the tenant under the lease, alleging that she had in certain respects allowed the premises to fall into disrepair. She was simultaneously served with a notice under Section 146 of the Law of Property Act 1925 and warned that the freeholder would re-enter the premises if the defaults were not remedied within seven weeks.

After the freeholder sought forfeiture of the lease, a judge found that the tenant had breached her repair and maintenance obligations and that those defaults had not been entirely remedied within the seven-week period. However, he refused to make a possession order against her on the basis that the Section 146 notice had not been validly served. By the terms of the lease, it should not have been served until 14 days after the tenant had been issued with the default notice.

In dismissing the landlord’s challenge to that ruling, the Court noted that the case raised an interesting issue of statutory interpretation. On a commonsense reading of Section 146, tenants are entitled to receive full notice of what they are required to do in order to remedy defaults. There was no authority for the proposition that a Section 146 notice may be served before a right to re-entry has actually accrued.


Rights are granted at a fixed point in time but sometimes have to be interpreted in the light of changed circumstances

In order for landowners to make profitable use of their holdings it is often necessary for them to obtain rights over neighbouring properties. The extent of such rights can often be the focus of disagreement and that was certainly so in one case on which the survival of a fish farm depended.

The owners of the fish farm, one of the first in the British Isles, had the benefit of an easement, dated 1973, which entitled them to run a water pipe under a farmer’s adjoining field. With the objective of increasing the intensity of their operation, they wished to install a much larger pipe in order to take advantage of hydroelectric energy from a weir as a cheap source of power. After the farmer’s death, however, the owners encountered resistance from the personal representative of his estate.

In upholding the owners’ arguments and opening the way for the larger pipe to be installed, the High Court noted that the original fish farm was no longer commercially viable and would cease to exist if their modernisation plans were thwarted. The intensification that would be enabled by the larger pipe was critical to the survival of the business.

Installation of the larger pipe accorded with the original purpose of the easement and would not involve a radical change in the use that the owners made of their rights. They had disavowed any intention to sell excess power generated by the weir to the National Grid and the Court emphasised that, on a true interpretation of the easement, the diversion of water through the pipe would only be lawful if it was for the primary purpose of fish farming.


“Geography is about maps but biography is about chaps” (© Edmund Clerihew Bentley). This case shows the drawbacks of even the most carefully drawn of maps (or plans)

A line on a map, however finely drawn, can never be narrow or precise enough to identify a boundary with absolute accuracy. As one case concerning a footpath showed, that inescapable fact lies at the heart of innumerable disputes.

The footpath ran between steep banks and appeared as a black line on maps dating back to the early 19th century and on the modern definitive map for the area. A couple who owned a neighbouring house claimed so-called squatters’ rights in respect of that part of a bank that adjoined their back garden.

A local authority disputed the couple’s ownership of the bank on the basis that it formed part of the footpath. There was no dispute that, if that was the case, the couple’s application to register the bank in their names had to fail as a matter of law in that squatters’ rights have no application to public highways.

In ruling on the matter, the First-tier Tribunal (FTT) acknowledged that lines on maps were insufficient to resolve the dispute one way or the other. In deciding whether the bank formed part of the footpath, it was therefore necessary to resort to oral evidence and the physical features of the bank, including tree lines and fencing arrangements.

In upholding the couple’s arguments, the FTT found that the council had failed to establish that the banks of the footpath had been created by its use by livestock over very many years. Fencing or hedging at the top of the banks for much of their length was as likely to be there to prevent falling accidents as to delineate a boundary.

Throughout their ownership of their home, the couple had cut back vegetation on the bank and treated it as their own. Without the council’s consent, they had been in factual possession of the bank for more than the required 20-year period and they were thus entitled to register their title to it.


Yet another warning of how “overage agreements” can lead to disputes

When land is sold, it is common to enter into overage agreements so that vendors can share in the profits of any future development. In one case, the Court of Appeal ruled that a developer breached such an agreement when it sold five housing units to a social housing provider at cost price.

When the developer acquired the relevant land for housing development for £12.34 million, it agreed that it would pay overage to the vendor. Sums due to the vendor would be calculated as a percentage of the price achieved per square foot insofar as those sums exceeded a benchmark price.

After the sale, the developer obtained a modification of the planning permission from the local authority. In return, the developer signed an agreement under Section 106 of the Town and Country Planning Act 1990 whereby it undertook to sell five units to a social housing provider at cost price. It did that unilaterally, without the vendor’s consent, and the vendor launched proceedings.

The vendor’s claim was dismissed by a judge on the basis that the sale of the five units was a permitted disposal within the meaning of the overage agreement, in that it was a transaction that had been entered into for social or community purposes. The judge also found that the vendor had in any event suffered no loss because, in the midst of a falling property market, the price per square foot that would have triggered a payment under the overage agreement had not been achieved.

In allowing the vendor’s appeal against the judge’s decision, the Court noted that the sale of the five units to the social housing provider had not been on the open market or at arm’s length. On a true interpretation of the overage agreement, the transaction could not be viewed as a permitted disposal.

Also upholding the vendor’s right to damages, the Court noted that, had it known in advance of the developer’s plan to sell the five units, the vendor could have obtained an injunction to restrain the breach of contract. The developer’s unilateral action in completing the sale had deprived the vendor of the opportunity to negotiate an amendment to the agreement. The amount of compensation due to the vendor remained to be assessed.


A warning for landlords who arrange insurance

Service charges are a burden on residential tenants and the onus is on landlords to prove that expenses have been reasonably incurred. In one case, a tribunal found that insurance premiums passed on to residents of a block of flats over a three-year period were more than £27,000 higher than they should have been.

The case concerned a landlord who had negotiated a block policy in respect of its very large portfolio, which included the block of 16 flats. The residents of one flat challenged insurance premiums totalling more than £36,000 that the landlord had sought to levy on residents between 2014 and 2017. The First-tier Tribunal upheld their complaint and determined the premiums payable at under £9,000.

In challenging that ruling before the Upper Tribunal (UT), the landlord argued that the policy was comprehensive in its cover, suitable for the property and had been negotiated through reputable brokers. In dismissing the appeal, however, the UT noted that the landlord had been wholly unable to explain the mysterious discrepancy between premiums charged to its tenants under the block policy and premiums obtainable for similar cover from other insurers on the open market.

The UT noted that the landlord was not required to show that the premiums were the cheapest that could be obtained on the market. However, it bore the burden of proving that they had been reasonably incurred. In such cases, landlords would be expected to provide evidence of steps taken to assess the market and to explain why a particular policy had been selected. For their part, tenants were entitled to rely on alternative quotes, so long as they were genuinely comparable.


Can I find a way to get around the wording of that covenant and develop my land?

Restrictions on the use of land often lurk in dusty old title deeds but, with the right legal advice, they can be modified to enable developments more in keeping with the modern world. Exactly that happened in one case in which the Upper Tribunal (UT) opened the way for a mansion to be demolished and replaced by a block of six luxury flats.

The mansion was one of a number of substantial homes that had been constructed on land that had been divided into building plots in the late 19th century. Most of them were subject to restrictive covenants that were designed to restrict density of development and to ensure that only homes of a certain value were built.

The particular plot was subject to a covenant, dated 1896, that dictated that only two private dwelling houses could be built on it. Its owner had been granted planning consent to demolish the mansion and build the flats, but faced determined objections from the owners of three neighbouring properties.

The objectors argued that the block of flats would be excessively large – having a floor area more than three times that of the building it would replace. The project would result in increased noise levels and traffic problems. There would also be a loss of light and privacy and other properties would be overlooked by the flats. Their primary concern, however, was that the development would be the thin end of the wedge and would encourage further planning applications. There was no dispute that the flats development would breach the covenant.

In ruling on the dispute, the UT noted that the development would be a reasonable use of the plot. Although the existence of the covenant did bring some practical benefits to the objectors, they were collectively modest. The ‘thin end of the wedge’ argument was undermined by the fact that there had, over the years, been numerous breaches of density covenants in the area. The covenant was modified so as to enable the flats’ development to proceed.


And contrast…

Restrictions on the use of land are to be found in title deeds dating back many years – but their antiquity does not necessarily mean they are any less effective. In one High Court case, restrictive covenants that were more than a century old stymied a developer’s hopes of building a residential care home.

The relevant site had once been part of a larger estate. Following its owner’s death in 1892, the estate was split into a number of building plots and disposed of. The relevant conveyances, dated 1910, contained a number of restrictive covenants that bound both vendors and purchasers and were intended to ensure that only a certain number of high-class residences would be built on each plot.

A developer had acquired a substantial portion of the original estate and had obtained planning consent to demolish existing homes and to build a care facility for elderly people on the site. The proposals were, however, opposed by a number of residents of nearby properties in reliance on the covenants.

The developer launched proceedings, seeking declarations to the effect that the covenants were no longer enforceable. It pointed out that they had been breached numerous times in the past and that the density of housing on the plots had been increased. A block of 18 flats had been built on part of the estate.

In rejecting the developer’s arguments, however, the Court noted that the covenants were expressed to run with the land and to bind future vendors and purchasers of the original plots. They were intended to maintain the residential character of the neighbourhood at a high level of quality. The increase in housing density had not so transformed the character of the estate as to render the covenants unenforceable. The objectors were in principle entitled to enforce the covenants by injunction.


Small firms unaware of impending tax changes

A report commissioned by HMRC reveals widespread ignorance among small businesses about the government’s “making tax digital” proposals. Seven in ten small businesses and landlords are not aware of the impending shake-up, which will oblige them to digitise their tax records and update HMRC four times a year. The proposals affect an estimated 1.6m companies, 2.4m self-employed people and 900,000 residential landlords, and the ATT has described the apparent lack of awareness as a “serious problem”. The Ipsos Mori survey of 2,900 businesses and landlords also found a willingness to comply with the requirements among 70% of respondents. One in four firms said they would only comply under the threat of fines, and a third said they expect complying to be difficult.


A recent case show that while the Government’s often quoted aim is to increase housing supply, this does not guarantee that planning permission will be forthcoming

Housing developments in the countryside are almost always controversial, but those living in rural areas need affordable homes like anyone else. The Court of Appeal tackled that apparent dichotomy in quashing planning permission for construction of six affordable homes on the outskirts of a small village.

The project was the brainchild of a local couple who wanted to build themselves a new family home on an open paddock that they owned in the village. Their plan was to gift part of the land to a developer who intended to build up to six affordable homes for the benefit of local people in need.

Local planning policy favoured concentrating new housing on existing settlements, but an exception was applied to rural areas where there was a clearly identified need for affordable homes. A planning officer recommended that permission be refused, but the council cited the exception and granted outline consent. A local resident’s challenge to that decision was rejected by a judge.

In allowing his appeal and quashing the consent, however, the Court noted that the planning officer had given good reasons why permission should be refused. The most recent local housing needs assessment for the village identified a need for five, not six, new affordable homes. A housing officer had also called into serious question the actual need for more affordable homes in the village.


Another case, however, shows that there is still a presumption in favour of development

Progress is not always popular and there is a natural desire to preserve old buildings that have architectural merit, even if they are not listed. However, in one case, the High Court opened the way for the redevelopment of what is believed to be the oldest timber yard in England.

The red brick building had been in continuous use as a timber yard since it was built in the 19th century. Plans to transform it into flats and new shops were greeted by over 300 objections, including from conservation bodies. However, a planning officer reported favourably on the proposals and planning permission was granted by the local authority.

The building was not listed, but was agreed to have architectural merit. Its current tenants, who faced having to quit the premises to make way for the development, argued that insufficient account had been taken of its historically important use and its status as a non-designated heritage asset. The yard also provided employment and was an important resource for local tradesmen.

In dismissing the tenant’s judicial review challenge, however, the Court noted that it would be wrong to subject the officer’s report to hyper-critical legal analysis. Although the interior of the building would be much changed by the development, its exterior would not be greatly altered. Councillors had not been misled by the report, which summarised the objections to the scheme and appropriately assessed the potential harm to the area’s character and appearance.


Ignore planning control at your peril

Planning laws are there to be obeyed and local authorities, with judicial backing, are not afraid of enforcing them. In one case, the High Court opened the way for a family home that had been built without planning consent to be levelled to the ground.

The couple who built the house had been served with an enforcement notice by the local planning authority, requiring its demolition. Their appeal against the notice, and an attempt to win retrospective planning permission, were both later rejected by government planning inspectors on the basis that the house was harmful to the character and appearance of the rural area.

The council ultimately resolved to take direct action under Section 178(1) of the Town and Country Planning Act 1990 and to send in its own workmen to carry out the demolition work. In dismissing the couple’s judicial review challenge to that decision, the Court could find no fault in the council’s approach.

The couple had been afforded every opportunity to persuade the council to stay its hand and had been warned in the clearest possible terms of its intention to take direct action. Despite having been given very clear deadlines, extended several times, the couple had chosen not to demolish the house themselves.


If you are considering works to items linked to a listed building, beware

The definition of what is, and is not, a building can be legally tricky and some might be surprised to hear that the High Court has confirmed that two historically important 18th century urns and pedestals fitted the bill and warranted listing in their own right.

The items were the work of a well-known Flemish sculptor and had once graced the garden of a ducal stately home. For some years they had stood in the grounds of a country house, the owner of which removed them and sold them at auction. He was unaware at the time that they, as well as the house, were listed. English Heritage had been notified of the impending sale but had not responded.

On learning of their removal six years after the event, the relevant local authority issued the owner with an enforcement notice requiring him to restore the items to his grounds. He was refused retrospective listed building consent to remove them. Both decisions were subsequently upheld by a government planning inspector.

The owner pointed out that the items had been purchased by an anonymous buyer and had probably been exported from the UK. Even if their owner could be traced, he could not be compelled to return them so that they could be put back in their original position. The inspector, however, took the view that sanctioning their removal would set an extremely dangerous precedent that could endanger the preservation of innumerable other designated heritage assets.

Challenging the inspector’s decision, the owner argued that the items were not ‘buildings’ and had thus been wrongly listed. In rejecting that and other arguments, however, the Court noted that all sorts of structures – from telephone and post boxes to shipyard cranes, statuary and sculpture – appear on the register of listed buildings. The items had been listed independently from the house and the fact that most people would not view them as buildings was irrelevant. Given their quality and historic provenance, they were worthy of their protected status and they had not been listed by mistake.


It is important to follow due process in applying for planning permission

In blocking proposals for a penthouse flat, the High Court identified a series of reckless errors by a property company or its agents and noted that the case served as an object lesson on how not to apply for planning permission.

The company owned the freehold of a residential block and obtained the benefit of consent to extend the building upwards, in order to create a new flat. Upon learning that permission had been granted, the long leaseholder of the existing top-floor flat launched judicial review proceedings against the local planning authority.

In overturning the consent, the Court noted a number of glaring mistakes on the application form and accompanying documents. The applicant for permission had been named as a man who was apparently acting as a consultant for the company. He had no interest in the property but was identified as the sole owner of the land to which the application related.

The consultant’s address was given as that of the leaseholder and the documents made no mention of the leaseholder’s ownership of the top-floor flat. His address was also given as the location of the proposed development, although it in fact concerned the air space above it.

As a result of those errors, the council understandably assumed that the leaseholder had sold his flat to the consultant. Although a notice of the planning application was placed on the street outside, the leaseholder failed to spot it and no other steps were taken to notify him of the proposals. In the circumstances, the council agreed that the consent should be quashed. The company, however, argued that it should be kept alive, primarily on grounds that permission would have been granted in any event.

However, in upholding the leaseholder’s challenge and overturning the permission, the Court was entirely satisfied that statements made in support of the application were false and misleading. They had been made recklessly and exhibited a cavalier disregard for mandatory statutory requirements. The company and the consultant were ordered to pay both the leaseholder’s and the council’s legal costs. Those bills came to £25,500. The Court noted that the case served as a cautionary tale on how not to submit a planning application.


Planning authorities should be mindful of data protection

Uploading information to the Internet takes seconds and mistakes are easily made, but the consequences of publishing private data online can be severe. In one case, a local planning authority was fined £150,000 after it posted personal information about a family of travellers on its website.

A statement had been submitted to the authority that contained sensitive personal data about the family in the context of a planning application in the Green Belt. The statement referred to the family’s disability requirements, including mental health issues. Names, ages and the location of the site where they lived were also given. The authority was required to place planning applications on its website for public consultation purposes and, after the matter was put in the hands of an inexperienced employee, the statement was uploaded in unredacted form.

The Information Commissioner’s Office found that what happened amounted to a serious breach of the Data Protection Act 1998. Although it was not deliberate, it had resulted from serious oversight and the inadequacy of the systems that the authority had in place to guard against such breaches. The information could have been accessed by hostile third parties and the authority ought reasonably to have known there was a risk of a contravention that would be likely to cause harm or distress. In those circumstances, a substantial monetary penalty was justified.

This e-bulletin was first published on 30 January 2018