We are pleased to bring you the fifth 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.
Nicholas Brent , partner and Head of Druces’ Property Team.
1. Oral Modifications of Contracts – Supreme Court Lays Down the Law
Contract terms that seek to set agreements in stone, preventing their subsequent oral modification (NOM clauses), have long been controversial – but the Supreme Court has ruled in a guideline case that they perform important functions and neither frustrate nor contravene any policy of the law.
A property company that operates office developments in London had granted a licence in respect of certain premises to an advertising agency. The agreement stated that it set out all of the terms that had been agreed and that any variations would only take effect if formally approved in writing by both parties.
The agency accumulated licence fee arrears and its director proposed a schedule of payments to a credit controller employed by the company, by which some payments would be deferred and the payment of arrears would be spread over the remainder of the licence period. The company subsequently locked the agency out of the premises, terminated the licence and sued it for the arrears. The agency counterclaimed, seeking damages for wrongful exclusion from the premises.
A judge accepted that the company had, via the credit controller, orally agreed to the schedule of payments. However, he went on to find that the company was entitled to claim the arrears without regard to that agreement because it did not satisfy the formal requirements of the NOM clause. The Court of Appeal later upheld the agency’s challenge to that ruling on the basis that, by orally agreeing to the agency’s proposal, the company had also consented to dispense with the NOM clause and to accept an oral variation of the licence agreement.
In allowing the company’s appeal against that ruling, the Supreme Court noted that NOM clauses are commonplace and perform important purposes. They prevent attempts to undermine written agreements by informal means; they avoid disputes about whether variations are intended and, if so, their exact terms; and they make it easier for corporations to police their own internal rules.
By its decision, the Court of Appeal had overridden the contracting parties’ intention to bind themselves as to the manner in which future changes to their legal relations were to be achieved. In those circumstances, there had been no variation of the licence agreement and the company was entitled to rely on its strict terms.
2. Landlord Who Failed to Consult Tenants Has Service Charges Capped
Tenants are legally entitled to be consulted before their landlord’s sign agreements with their managing agents or others that extend beyond a 12-month period and result in the levying of service charges. As a Court of Appeal case showed, failure to comply with such requirements can have extremely serious consequences.
The case concerned an urban block of flats occupied by over 150 leaseholders. The property’s freeholder launched proceedings against one tenant in order to recover more than £24,000 in alleged arrears of service charges. Part of that related to the tenant’s contribution to fees payable by the freeholder to its managing agent.
That portion of the service charges was, however, disallowed by the First-tier Tribunal on the basis that the agreement between the freeholder and its agent was a qualifying long-term agreement – within the meaning of Section 20ZA(2) of the Landlord and Tenant Act 1985 – to which mandatory consultation requirements applied. There was no dispute that those requirements had not been met. The freeholder’s challenge to that ruling was later rejected by the Upper Tribunal.
In dismissing the freeholder’s appeal against the latter decision, the Court of Appeal noted that the relevant agreement stated that it would last for one year. However, it did not stop there, also providing that the agreement would continue thereafter. On its true interpretation, the agreement introduced a mandatory requirement that it would continue beyond the initial 12 months for an unspecified further period.
In those circumstances, the Court found that the agreement was indeed a qualifying long-term agreement to which the consultation requirements applied. The failure to comply with those requirements meant that, by operation of the Service charges (Consultation Requirements) (England) Regulations 2003, the tenant’s contribution to the managing agent’s fees was capped at £100 per annum.
3. Long Leaseholders – You May Need Landlord’s Consent for Alterations!
Many long leaseholders believe that their legal position is almost identical to that of a freeholder. However, in a case that showed how mistaken that view is, a maisonette dweller who failed to obtain her landlord’s consent before making a hole in an exterior wall was found to have breached the terms of her lease.
The leaseholder held a 999-year lease in respect of the upstairs flat in a Victorian House. Her landlord, who owned the property’s freehold, occupied the flat beneath her. There was a history of disputes between them in respect of service charges and other matters. In particular, the landlord complained after a plumber knocked a hole in the wall in order to fit the tenant’s toilet with a new waste pipe.
Following lengthy proceedings, the Upper Tribunal (UT) granted the landlord a declaration under Section 168(4) of the Commonhold and Leasehold Reform Act 2002 that the tenant had breached a covenant in her lease. That covenant forbade her from altering, cutting or maiming any of the maisonette’s exterior walls without first obtaining the landlord’s written consent to the works.
That decision opened the way for the landlord to seek forfeiture of the tenant’s lease under Section 146(1) of the Law of Property Act 1925. However, the UT noted that, if there were to be further proceedings, the nature and seriousness of the breach should be viewed in context. Had the tenant asked permission to make the hole, it was highly probable that the landlord could not reasonably have refused her request.
Two recent cases demonstrate that in certain circumstances, personal considerations can outweigh planning law. In the first, the welfare of children was of most importance (see article 4 below) and in the second, financial matters were paramount (see article 5 below). Whilst this humanitarian approach is understandable, it is questionable whether this is the best way of upholding a consistent planning regime.
4. Child Welfare Dispute in Gypsy Encampment Planning Dispute
The welfare of children is always in the forefront of judges’ mind, not just in family cases but in many planning cases too. In one case on point, the presence of 11 youngsters on a gyps caravan site was instrumental in defeating a landowner’s attempt to remove what he viewed as a blot on the landscape.
Nine families had been granted temporary planning permission to live on the site in 13 caravans for five years. Shortly after that consent expired, they were granted further permission that enabled them to stay for another five years. The local authority had acted on advice from one of its officers that there was an undersupply of authorised traveller sites in the area and that, if consent were refused the families would be forced into a peripatetic roadside existence.
A landowner whose listed home overlooked the encampment successfully mounted a judicial review challenge to the planning permission on the basis that the council had no sufficient information on which to find its conclusion that the children’s welfare would seriously be harmed by a refusal of consent.
In allowing the council’s appeal against that ruling, however, the Court of Appeal noted that living in caravans was an integral part of the families ethnic identity. Requiring them to move on would be seriously detrimental to the interests of children living on site, in that they would be deprived of a base from which to access healthcare and education. In those circumstances, the council’s approach was realistic and legally unassailable. The planning permission would be upheld.
5. Planning Enforcement Notices – What Happens If Compliance Is Unfeasible?
Planning enforcement notices must be obeyed, but what happens if compliance is simply not feasible? The High Court tackled that issue in a case concerning an extension to a £1.85 million house that was built without planning consent.
There was no dispute that a couple had built the three-storey extension to the back of their Victorian house without permission. The local planning authority issued an enforcement notice requiring total demolition of the extension and restoration of the wall to which it was attached to its original condition. The notice was subsequently upheld in somewhat modified form by a government planning inspector.
The deadline for compliance with the notice came and went without the extension’s removal and the council prosecuted the couple for non-compliance. They were, however, acquitted by a district judge on the basis that they had done all that they could have been expected to do in order to secure compliance.
In dismissing the council’s appeal against that ruling, the Court noted engineering evidence that restoring the wall would require removal of a steel frame from the back of the house. That was likely to have serious consequences for a building that was built on London clay and sand and was already visibly leaning.
Any restored wall would almost certainly subside at a different rate from the rest of the house, potentially de-stabilising the whole building. The works required would cost £360,000 and putting in pilings to support the house would add another £150,000 to that bill. The house was subject to a £2.4 million mortgage and, due to the blight caused by the dispute, was said to be well into negative equity.
The Court found that the works required would be exceedingly difficult and were more likely than not to fail. Although not a complete physical impossibility, such a project had been justifiably described as unfeasible. The Court expressed considerable sympathy for the council and described the prospect of the unauthorised extension remaining in place as troubling. Whether or not to take further enforcement action was, however, a matter for the council.
6. Failure to Pay £50 Licence Fee Lands Car Manufacturer in Hot Water
When tenants discovered that their landlord had bought insurance over their flats, including the structure of the building, when they had already purchased insurance cover for themselves, the resulting argument ended up in the Upper Tribunal (UT).
The tenants’ leases contained a provision that they were liable for their share of ‘the amount of the premium or premiums payable in respect of any insurance or insurances effected by the Lessor’. They were required to obtain insurance in the joint names of themselves and the landlord, but not all did so. Up until 2014, there were no issues. Agents acting on behalf of the original lessor arranged insurance cover for the common areas of the building, leaving the individual leaseholders to insure their own flats.
In 2014, a new freeholder took over the property. Following a revaluation of the sum insured, the annual premium for the insurance increased by more than £150 per flat and further substantial increases occurred in 2015 and 2016.
The 27 flat owners argued that the landlord was not permitted to charge for insuring more than the communal areas, so did not have the right to buy the insurance for individual flats or to recharge it as a cost to the tenants as a whole. Some, but not all, of the tenants had listed the landlord as an interested party in their insurance policies, which they claimed was sufficient to discharge their responsibilities under the lease.
The UT concluded that the lease terms did give the landlord the right to buy the insurance and recover the cost from tenants if they failed to insure their premises in the manner required by the lease. However, because the insurance taken out by the landlord was not in accordance with the agreed specification, the cost was not recoverable from the tenants. Landlords must be reasonable in their approach to issues such as this and ensure they comply strictly with their own obligations to their tenants.
Two recent cases highlight the fact that what are sufficient benefits to justify the grant of a planning permission depend very much on the facts of each case. In the first somewhat vague undertakings as to electricity bills and contributions to a community investment scheme were insufficient to justify a wind farm (see article 7 below). While in the latter affordable housing was enough to justify a housing development in open countryside (see article 8 below).
7. Offers of Community Benefits Not Enough to Achieve Wind Farm Consent
It is increasingly common for would-be developers to unilaterally offer a wide range of community benefits in support of their planning applications. However, such offers often prove controversial and a guideline High Court ruling in a wind farm case has cast doubt on whether they are likely to be worthwhile.
A company wished to erect 11 wind turbines on a rural 38-hectare site. It offered unilateral undertakings that local residents electricity bills would be reduced by at least 20 per cent and that it would put money into a community investment scheme. Planning consent was, however, refused by the local authority and subsequently by the Secretary of State for Communities and Local Government.
In challenging the latter ruling, the company argued that its undertakings were material planning considerations and had wrongly been ignored by decision makers. It pointed to government policies in favour of community-led initiatives and community involvement in renewable energy projects.
In dismissing the company’s arguments, however, the Court noted that it had given no firm commitment that electricity bills would in fact be reduced. That offer could be withdrawn at any stage and it had not been specified exactly which members of the local community might benefit.
The offer was essentially an inducement to make the proposal more attractive to local residents and to the local planning authority, and the Secretary of State was entitled to give no weight to it. The same applied to the community investment scheme, which was lacking in specific detail and would only come into effect six months after the first power was generated.
Although the Secretary of State had recognised the extensive and weighty public benefits of the project, he had agreed with a planning inspector that the advantages were outweighed by the serious harm that would be caused to the setting of listed buildings and designated heritage assets.
8. High Court Gives Green Light To Housing Development in Open Countryside
Housing developments in the open countryside are frequently controversial but, as a High Court case showed, social and economic advantages – particularly the provision of affordable housing – can sometimes tilt the balance in their favour.
A developer’s proposal to build 10 homes on farmland met with stiff resistance from the local authority on the basis that its planning policies placed tight restrictions on house building outside existing settlements, save where such developments were considered essential in countryside locations. The council had a five-year supply of housing land in place and argued that the project was unnecessary.
A central government planning inspector, however, granted planning consent on the basis that the social and economic benefits of the scheme, and its contribution to affordable housing in the area, outweighed the inevitably adverse impact on the character and appearance of the countryside.
That impact would be limited and localised due to the low density of the proposed housing, which would be shielded by planting and landscaping. The inspector also noted that the rural character of the area would in any event be transformed in the future as planning permission had already been granted for substantial mixed-use development of nearby sites.
In dismissing the councils challenge to the inspectors ruling, the Court found that he had had appropriate regard to the local development plan. He had properly balanced harm against benefits and, in the exercise of his planning judgment, had given adequate and intelligible reasons for disagreeing with the council.
9. Restrictive Covenant Amendment Enables Barn Conversion to Proceed
Restrictive covenants are often found in title deeds and are an effective means of protecting property owners’ rights to privacy and to live free from noise and other nuisance. However, as a tribunal decision illustrated, such covenants can be modified to enable reasonable use of land.
The case concerned a couple whose £2.6 million home was set in a 90-acre rural estate and was accessed by private driveway. A woman who owned a cottage on the estate and was accessed by a private driveway. A woman who owned a cottage on the estate which was also accessed via the driveway had obtained planning consent to convert her redundant agricultural barn for residential use.
The couple objected to the development in reliance on a covenant in the woman’s title deeds that restricted her use of her land to that of a single private dwelling house. They argued that the barn conversion would lead to an intensification of traffic movements on the driveway and that the barn’s occupation would generate noise and impinge on the privacy of their secluded home.
In ruling on the dispute, the First-tier Tribunal (FTT) found that the development would not significantly impact on the couple’s enjoyment of their home. Given the barn’s distance from their property, effective screening by hedges and bushes, and the modest projected increase in traffic movements, the covenant did not confer on them practical benefits of substantial advantage. On that basis, the FFT directed that the covenant be modified so as to enable the development to proceed.
The FTT, however, found that the barn conversion was likely to reduce the value of the couple’s home by about 2.5%. the woman therefore ordered to pay the couple £65, 000 in compensation before the modification would take effect.
10. Off-Plan Flat Purchases Likely to Lose Deposits Following
Developer Insolvency
Purchasing flats before they are built in so called ‘off-plan’ transactions is a popular means of snapping up desirable properties at reasonable prices. However, as one High Court cases showed, such investments are far from risk free and should never be hazarded without taking professional advice.
The case concerned a single purpose company that engaged in the conversion of a hotel into private flats. More than 50 home buyers had bought flats off-plan, most of them paying 25 percent of the purchase price as a deposit. However, the project turned out to be seriously under-funded and the development remained far from completion when the company became insolvent and entered administration.
The deposits, all of which had been ploughed into funding the development, were secured by way of purchasers’ lien. However, in a vain attempt to keep the project afloat, the company had also borrowed more than £4 million from a commercial lender, that money being secured on the property by mortgage.
After the administrators sought judicial guidance, the Court approved their proposal to sell the property’s freehold as if it were not encumbered by the mortgage or the purchasers’ liens. Despite objections from two of the purchasers, the Court found that other options had been adequately investigated and that the proposal was likely to yield the highest sale price, and thus, the best outcome for creditors.
Those purchase’s, three in number, who had registered unilateral notices to secure their interests in the property prior to registration of the lender’s mortgage would take top priority amongst the creditors and be paid first from the sale proceeds. The lender would, however, come next in the queue and, after the mortgage debt was paid off, it was very unlikely there would be any money left to recompense the remaining purchasers. Unless the property sold for a substantially higher price than expected, they would therefore lose their deposits.
11. Enquiries Before Contract – Why Your Answers Must be Accurate!
Every landlord or property seller should be aware that the consequences of failing to answer accurately enquiries before contract can be severe. In a Court of Appeal case, a landlord who failed to disclose that commercial premises were contaminated by asbestos ended up with a seven-figure compensation bill.
The case concerned the lease of three warehouse units and an agreement to lease a fourth. In enquiries before contract, the tenant asked if the landlord was aware of any hazardous materials, including asbestos, affecting the premises. The latter replied with the all-too familiar words, ‘the buyer must satisfy itself’. It also replied that it had not received notice of any environmental problems affecting the premises, but reiterated that the tenant must satisfy itself.
Prior to making those replies, the landlord’s agents had received an email from a health and safety firm that had been instructed to inspect the premises. The email reported that the units were so contaminated with asbestos that they were dangerous to enter. In ignorance of the email, the tenant entered into the relevant lease and agreement. After the tenant launched proceedings, a judge found the landlord liable to pay £1.4 million in damages under the Misrepresentation Act 1967.
In dismissing the landlord’s challenge to that ruling, the Court agreed with the judge that the failure to disclose the asbestos contamination amounted to a clear misrepresentation and that the tenant was entitled to be compensated for the costs of remedial work and of arranging alternative premises during the period of almost nine months that it took to complete them.
The lease contained a clause by which the tenant acknowledged that it had not entered into the agreement in reliance on any statement or representation made by or on behalf of the landlord. However, the judge had rightly found that the provision amounted to an attempt to exclude liability for misrepresentation and was thus unreasonable, within the meaning of the Unfair Contract Terms Act 1977.
If you are considering objecting to a neighbour’s planning application and certainly before you give any undertaking for damages, it would be wise to read the following case:
12. Do You Want to Object to Neighbours’ Building Plans?
You are entitled to object to your neighbours’ building plans. In this case a homeowner who opposed construction of an extension next door ended up being ordered to pay his neighbours more than £20,000 in damages.
He believed that the extension would be too close to his gas flue outlet and sought an injunction against the couple next door. In the event, the they gave a formal undertaking that they would suspend the works pending resolution of the dispute. A property expert was jointly appointed to resolve the matter and the man promised that, if he turned out to be in the wrong, he would pay the couple damages.
After the expert found that the extension involved no encroachment onto the man’s property, the couple launched proceedings to hold him to his promise. While the building works were delayed by the dispute, the couple had to move out to live with a relative, to whom they paid rent. The costs of the project ballooned and they had to move their belongings into storage. They also had to cancel their Sky subscription and incurred extra costs in driving their children to and from school.
Following a hearing, a judge ordered the man to pay the couple £22,860 in damages. He was also directed to move his gas flue further away from the boundary so as to comply with building regulations. The man challenged the decision, but the High Court could find no flaw in the judge’s ruling and dismissed his appeal.
13. Construction Contracts and Liability for Concurrent Delays –
Court Guidance
Building companies routinely take on contractual liabilities to pay compensation if they are to blame for delays in completion – but what happens if such delays are as much the employer’s responsibility as the contractor’s? The Court of Appeal considered that issue in a guideline case.
A developer had employed a contractor to design and build a large house. Included in the contract was a provision that required the latter to pay £5,000 in compensation for each week the project was delayed. Controversially, it also contained a clause which provided that, where a delay caused by the contractor was concurrent with a delay for which the employer was responsible, the latter would be ignored when calculating any extension of time to the completion date.
The contractor argued that it was wrong in principle for the employer to hold it to a completion date, and a consequent liability to pay compensation, in circumstances where at least part of the delay was caused by the employer. That submission failed to convince a judge, however, and the validity of the clause was upheld.
In dismissing the contractor’s appeal against that ruling, the Court noted that the clause had the crystal-clear objective of allocating the risk of concurrent delay to the contractor alone. Although the contractor viewed the effect of the clause as unfair, it had freely agreed to it. Even if the employer had been equally responsible for the delay, there was no overarching principle of law or legal policy that rendered the clause inoperable so as to rescue the contractor from its consequences.
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This e-bulletin was first published on 10 October 2018
