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Real Estate e-bulletin – Issue 7

We are pleased to bring you the seventh edition of Druces’ real estate 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’ Real Estate Team.


 1.       Iconic Building Owner Wins High Court Injunction Against Urban
………..Explorers

The recent craze for so-called ‘urban exploring’ – in which trespassers put their lives in jeopardy by scaling iconic buildings – poses a particular problem for commercial property owners. However, as a High Court case showed, judges are alert to the issue and are far from impotent in dealing with it.

Lawyers representing the owners of a well-known building took action against three prolific urban explorers who had become Internet celebrities, with millions of social media subscribers, by posting videos of their exploits online. Due to its shape and structure, the building was an obvious target and similar activities on other sites had already claimed the lives of a number of young people.

In granting an interim injunction which forbade the trio from entering any part of the building, and in particular from climbing on the interior or exterior of its roof, the Court found that they had trespassed, or sought to trespass, on the site in a manner which was inherently dangerous to themselves and others. The order was necessary to protect the owners’ private property rights.

The owners argued that imitators were encouraged by Internet posts publicising the trio’s activities. However, the Court declined to order their removal from the Internet on the basis that such an order would impinge upon the trio’s freedom of expression rights. Such rights were not unqualified, but there was no justification for such an order being made at an interim stage of the proceedings.


 2.       Discrimination Can Be Justified – Jewish Housing Charity Passes the
………..Test

Discrimination is generally a dirty word, but it can very occasionally be justified. The High Court made that point in dismissing a challenge to a social housing charity’s policy of giving preference to members of the Orthodox Jewish community.

The charity provided 470 homes in an area with a large Orthodox Jewish population and a pressing need for social housing. It accepted that its policy of primarily allocating its properties for occupation by members of that community involved direct discrimination, as defined by Section 13(1) of the Equality Act 2010.

However, in dismissing a judicial review challenge to the policy brought by a single, non-Jewish, mother of four children in desperate housing need, the Court found that that discrimination was justified, not least by the need to protect Orthodox Jews against a dramatic increase in racist crime targeted at their community.

The Court accepted that the length of the charity’s waiting list meant that, in practice, its properties were only ever allocated to Orthodox Jewish applicants. However, the policy had to be measured against a 44.5 per cent increase in reported anti-Semitic crime between 2014 and 2016, with 10 per cent of such crimes involving violence.

Traditional clothing worn by Orthodox Jews made them particular targets for anti-Semitism and the evidence demonstrated the needs of members of the community to live relatively close to one another for security reasons. Deprivation levels were high amongst Orthodox Jews in the area and they tended to have large families, requiring multi-bedroom accommodation.

In the circumstances, the charity’s policy was a proportionate response to the needs of the Orthodox Jewish community which it served and the particular disadvantages under which its members laboured. If the charity were to allocate any of its properties to non-members, that would seriously dilute the amount of accommodation available to Orthodox Jews. The Court also rejected arguments that the local authority could not lawfully make referrals of housing applicants to the charity.


3.       Mobile Phone Providers Triumph in Roof Top Equipment Test Case

The public interest in nationwide mobile telecommunications coverage has resulted in thousands of antennae sprouting on the roofs of tall buildings. An important tribunal ruling has, however, signalled a substantial reduction in rent and compensation payable by mobile phone operators to landlords in respect of such equipment.

The case was the first time that the Upper Tribunal (UT) had considered the effect of the Electronic Communications Code (the Code), which took effect in December 2017 pursuant to the Digital Economy Act 2017. The Code enables the UT to impose agreements on landlords who are unwilling to accept the installation of telecommunications equipment on their properties.

Two mobile phone operators wished to install four antennae on the roof of an urban block of flats owned by a local authority (the landlord). It had been agreed in principle that the operators would pay £21,000 a year to the landlord, but that agreement was not completed before the Code came into force. The matter was referred to the UT after the parties thereafter failed to reach terms.

The operators argued that the annual sum payable should be nominal in that, other than for telecommunications equipment, there was no market for the use of the building’s roof. The landlord, however, contended for a figure of up to £13,250 in reliance on comparable agreements reached prior to the Code coming into force.

In ruling on the matter, the UT noted that the rights concerned had to be valued on the basis that both the operators and the landlord were willing to deal at the market price. However, on a true interpretation of the Code, the operators were not able to use the absence of demand to drive the price down to a level at which the landlord would not be willing to transact.

The UT acknowledged that, where the characteristics of premises mean that, in reality, nobody would pay anything for them, their market value might be viewed as nominal. However, the absence of competition did not necessarily result in that outcome. The value of the premises depended on the characteristics and potential uses, not simply on the number of potential bidders in the market.

On the basis that the nominal value of the relevant rights would be £50 a year, the UT ruled that the sum payable by the operators should be £1,000 a year. That sum included a contribution towards the landlord’s costs of running the building. The operators having previously proposed a figure of £2,551.77 a year, that was the annual sum fixed upon by the UT.

The landlord’s arguments that it should also receive compensation in respect of a diminution in the building’s value – due in part to the alleged aesthetic detriment arising from the antennae – were rejected. There was no evidence that the value of such buildings was affected by the introduction of telecommunications equipment on their roofs. Other heads of loss and damage put forward by the landlord were dismissed as speculative and contingent.

The UT found that it had jurisdiction to impose an agreement on the landlord in the form of a lease. The agreement would last 10 years with a five-year break clause, at which point the annual sum payable would be reviewed. The operators would be required to pay the landlord’s reasonable legal and surveying costs and compensation for any loss or damage caused during installation.

EE Limited & Anr v The Mayor and Burgesses of the London Borough of Islington. Case Number: TCR/68/2018


4.       Supreme Court Upholds Estate Agent’s Right to Commission on Flats’
……… Sale

When deciding whether an enforceable contract has come into existence, the first question to be answered is whether the parties intended to be bound. The Supreme Court made that point in upholding an estate agent’s entitlement to commission on a £2.1 million property sale.

The developer of an apartment block had been put in touch with the estate agent, who agreed during a telephone conversation to assist in finding a buyer for seven flats. The flats were subsequently sold to a social housing provider who had been introduced to the developer by the estate agent.

The estate agent claimed a 2 per cent commission on the sale and launched proceedings after the developer refused to pay. A judge held that a binding contract had been agreed during the telephone call, and that the estate agent was thus entitled to his commission, but that decision was later reversed by the Court of Appeal.

In upholding the estate agent’s appeal against the latter ruling, the Supreme Court noted that, in circumstances where parties to an agreement intend to be contractually bound, judges are reluctant to find that such an agreement is too uncertain or vague to be enforceable. It was clear on the evidence that the developer had agreed to pay the estate agent commission if the latter succeeded in finding a purchaser.

The Court noted that, had it been necessary to do so, it would have implied a term into the agreement that the estate agent’s commission became payable on completion of the sale to a purchaser he had introduced. Such a term was required to give the agreement business efficacy.

In breach of Section 18 of the Estate Agents Act 1979, the estate agent had submitted his written terms of business to the developer only after he had made the introduction. That had led the judge to make a one-third deduction from the former’s commission. However, the Court rejected the developer’s argument that the estate agent’s failure to comply with the requirements of the Act should have resulted in the dismissal of his claim in its entirety.


5.       Even if parties think that exchanges of letters and e mails together
……….express all the contractual terms, they may not be enough to
……… constitute a “contract”.

No matter how many letters or emails are exchanged, they frequently do not reach a binding conclusion and can never replace a professionally drafted contract. The High Court made that point in dismissing an architecture firm’s claim for allegedly unpaid fees in respect of a residential development.

The firm was engaged by a businessman to produce plans for the demolition of two existing buildings and their replacement by a single home. The firm succeeded in obtaining planning permission for the project. However, a dispute arose as the development entered its final phase. The firm was suspended from the project and another architect was instructed to complete the necessary work.

The firm launched proceedings against the businessman and his daughter with a view to enforcing payment of two invoices, totalling about £40,000. The firm relied on emails and a letter which itemised its proposed fees. It argued that it was, in any event, entitled to payment of the invoices on the basis of work done.

In dismissing the firm’s claim, the Court found that the businessman’s daughter had not been a party to any contract, having acted solely as her father’s project manager. Although there had been extensive discussions, both in letter and email form, as to fees payable and work to be undertaken, they had reached no definitive conclusion and the firm’s fees had never been finally agreed.

The Court noted that the firm’s drawings in respect of the project’s final phase were in any event of limited value in that they were in certain respects non-compliant with building regulations. Given that lack of care and skill, the businessman was entitled to set off against any sums he owed the firm in respect of previous invoices the costs of obtaining both new plans from the replacement architect and building regulations consent.


6.       Dusty Restrictive Covenants Stymie Care Home Development Plans

Restrictions on the use and development of land frequently lurk in old and dusty title deeds, but their antiquity does not mean that they are ineffective. In a case on point, plans for a multi-million-pound care home for the elderly were effectively stymied.

A developer obtained planning consent for the 62,000-square-metre care home on a 1.5-acre site. The land was, however, subject to restrictive covenants contained within a number of conveyances dating back to 1910. They dictated, amongst other things, that only three detached private dwellings should be built on the site.

The developer failed in High Court proceedings in which it sought a declaration that the covenants were unenforceable. Undaunted, however, it subsequently lodged an application under Section 84(1) of the Law of Property Act 1925, seeking sufficient modifications to the covenants so as to enable the development to proceed.

In dismissing the application, the Upper Tribunal (UT) noted objections from a number of neighbouring homeowners who enjoyed the benefit of the covenants. If the care home were built, they would look out onto an incongruously large and brightly lit building relatively close to their boundaries.

The care home would have a uniformity of appearance and institutional character very different from the domestic homes permitted by the covenants. In those circumstances, the UT found that the covenants continued to yield substantial benefits to the objectors and that it would be wrong to modify them.


7.       Non-Domestic Rates-Court of Appeal refuses to look behind a
……… company to the owners (that is, to “pierce the corporate veil”) to
……… recover sums due.

The corporate veil remains a powerful barrier and judges will countenance piercing it only in exceptional circumstances. The Court of Appeal made that point in ruling that liabilities to non-domestic rates (NDRs) were successfully avoided by granting leases to single purpose corporate vehicles (SPVs).

Property companies in two local authority areas had granted leases of mostly empty properties to SPVs which had no assets or liabilities and which were subsequently either placed in voluntary liquidation or struck off the register and dissolved due to their dormancy. There was no dispute that the leases were part of an organised scheme to avoid payment of NDRs. Such schemes were in widespread use and there were more than 50 similar cases pending, involving about £10 million in NDRs.

After the local authorities launched proceedings against the property companies with a view to recovering unpaid NDRs, a judge decided, following a preliminary hearing, that it was arguable that the corporate veil in respect of the SPVs should be pierced. However, he ruled it unarguable that the leases should be disregarded. The local authorities and the companies each appealed against those parts of the judge’s ruling that were adverse to their cases.

The local authorities argued that the SPVs were interposed solely for the improper purpose of avoiding an existing or imminent charge to NDRs. However, in ruling on the matter, the Court noted the judge’s conclusion that the leases were not shams. In those circumstances, it could not be said that the property companies had deliberately evaded NDRs by interposing SPVs under their control.

Observing that it was unsurprising that the circumstances in which the corporate veil can be pierced are highly circumscribed, the Court noted that the use of companies to avoid NDRs or other taxes could hardly be described as rare or novel. Once each lease was executed, the right to legal possession of the properties passed to the SPVs, together with the liability to pay NDRs. In those circumstances, the local authorities’ claims had no realistic prospect of success and were struck out in their entirety.


8.       Are Unsigned Contracts Enforceable? It All Depends on Parties’
……… Intentions

Are contracts that have not been properly executed by signatures from all parties still enforceable? As a High Court ruling showed, the issue usually depends on whether there is a mutual intention to create legal relations.

A developer had engaged a contractor to design and build a retirement community. A contract in standard form was negotiated at some length and a price of £18 million was agreed. Cost overruns were encountered, however, and, following completion, the contractor sought up to £33 million from the developer.

Although the contractor had signed the contract, the developer never did. The contractor therefore argued that no binding contract had come into existence and that it was thus entitled to be paid not by reference to the contract, but to a fair valuation of the work it had actually performed.

Following a preliminary hearing, however, the Court found that the contract remained binding despite the absence of the developer’s signature. The contractor’s plea that the parties only intended to be bound once the contract was signed by both sides was rejected.

All essential matters had been agreed before the contractor’s signature was appended and there had been a clear intention to create legal relations. It was the contractor who had insisted that a formal contract should be in place and, in performing the works to completion, it had exhibited a belief that that was the case.


9.       Is a Failure to Build Precisely to Specification a Material Breach of
……….Contract?

Not every breach of contract is so serious as to justify its complete cancellation. The Court of Appeal made that point in a case concerning student accommodation blocks which were not built precisely to specification.

Prior to construction of the blocks, a company that specialised in providing student digs contracted to take a lease of them on completion. The contract was based on detailed drawings of the blocks and the prospective landlord was prohibited from making variations to the works which materially affected the size of rooms. A clause stipulated that a reduction in size of any room by more than 3 per cent would be deemed to be material.

After the development was certified as complete, the company refused to enter into the lease on the basis that 56 of the rooms were smaller than had been specified in the drawings and breached the 3 per cent tolerance. The company sought a declaration that it was no longer bound by the contract, but its arguments were rejected by a judge.

In dismissing the company’s appeal against that ruling, the Court noted that there was no dispute that the failure to construct the rooms to the required specification amounted to a breach of contract. However, it found that that breach was not sufficiently material or substantial to justify rescission of the contract.

The Court noted that there may be all manner of reasons why rooms are of slightly different sizes to those specified in contract drawings. It would be commercially unworkable if every departure from specification, however modest and regardless of the reason for it, were treated as a material breach of contract.

On a true reading of the contract, the parties had agreed that any room that fell outside the 3 percent tolerance was materially smaller than specified in the drawings and that that would be a breach of contract. However, there was no agreement that such a breach would itself be material. The contract therefore remained on foot and the landlord was entitled to seek its enforcement.


10.       Tenant of Boarded-Up Shop Granted Three Months to Find a Buyer

Boarded-up premises are a blight on any shopping centre, causing loss to landlords and other tenants alike, and that is why many leases include covenants which require retail units to be kept open. One such clause was considered in a case concerning a shop left empty due to the tenant’s insolvency.

The shop was the fourth largest unit in a successful shopping mall. The 125-year lease of the premises had been purchased by a national retailer in 1998 for a £7,500,000 premium. After the retailer entered administration, however, the premises were boarded up and had been empty for almost three years.

The lease contained a covenant which required the tenant to keep the shop open to the public during stipulated hours, seven days a week. There was no dispute that the retailer was in breach of that clause and, in seeking forfeiture of the lease and possession of the premises, the landlord pointed out that the empty shop had led to decreased footfall across the mall, to the disadvantage of other tenants.

The retailer, together with a lender who had advanced significant sums which were secured on the lease prior to the shop’s closure, sought relief from forfeiture. They argued that the lease, which had more than 100 years to run, remained a substantial asset and that forfeiture would result in the landlord receiving a windfall.

In ruling on the matter, a judge noted that the retailer’s breach of covenant arose from its insolvency and was not wilful. Despite the poor state of the retail market and the restrictive terms of the lease, which included no tenant break clause, the lease still had a value of over £1 million and there was a real prospect of the tenant finding another retailer who would take an assignment of the premises. If the lease were forfeited, the lender would also be deprived of its security.

The judge put into the balance the ongoing harm being suffered by the landlord and other tenants due to the retailer’s breach of covenant. In granting conditional relief from forfeiture, however, he gave the retailer three months to find a buyer for the lease.


11.     Is a Children’s Nursery a ‘School’ In Planning Terms? The High Court
……….Says No

Is a children’s nursery a school? The High Court has ruled in a guideline case that, at least in the planning context, the answer to that question is “no”.

The operator of a nursery installed two temporary buildings in its garden in order to provide more space for children. It had previously sought a certificate of lawful development from the local authority on the basis that the development did not require planning permission but did not wait for a decision before the buildings were put in place.

The council refused to issue a certificate and that decision was subsequently upheld by a government planning inspector. The Town and Country Planning (General Permitted Development) (England) Order 2015 (the GPDO) enables schools, universities, colleges and hospitals to erect buildings up to a certain floor area within their curtilages without formal planning consent. However, the inspector found that the nursery could not benefit from that provision because it was not a school.

In dismissing the nursery operator’s challenge to that decision, the Court found that the inspector had correctly interpreted the GPDO. Even if the services provided by the nursery were predominantly educational, that did not necessarily make it a school.

The Court noted that the phrase ‘school-age’ is commonly understood to encompass the period of a child’s life when he or she is by law required to attend school. Similarly, the phrase ‘pre-school’ is frequently applied to nurseries which provide for children who have yet to reach compulsory school age.

The Court observed that, if an estate agent told a house hunter that at the end of the road there was a good school, the latter would not expect to find a nursery school, however good. In those circumstances, the unqualified use of the word ‘school’ did not in its ordinary meaning include a nursery. The decision meant that the temporary buildings had been erected in breach of planning control.


12.    Planning Inspector’s Rejection of Housing Project ‘Inconsistent’, Court
………Rules

Consistency is the mark of good official decision-making and that is particularly so in the context of planning decisions. The High Court made that point in breathing new life into a proposal to build 135 new homes on the outskirts of a market town.

The local authority had refused to grant planning permission for the development and that decision was subsequently backed by a government planning inspector following a public inquiry. The would-be developer’s challenge to the latter ruling hinged on a local planning policy which sought to place strict limits on housing developments outside the boundaries of existing settlements.

The developer argued that the policy reflected an outdated view of real housing need in the area. The inspector, however, had ruled that the policy’s underlying objectives still held good and that it was not out of date. He had given moderate weight to the policy and declined to apply a tilted balance in favour of the development.

In upholding the developer’s challenge to the inspector’s decision, the Court noted that an earlier planning appeal, concerning another proposed housing development in the same local authority area, had resulted in a ruling that the policy was out of date. In those circumstances, the inspector had been obliged to explain why he had reached the opposite conclusion on precisely the same issue.

The inspector had failed to provide anything like adequate reasons for distinguishing or departing from the earlier decision. He had also failed to grapple with the issue of whether strict adherence to the policy would frustrate the council’s ability to achieve a five-year supply of deliverable housing land. The inspector’s decision was quashed and the Secretary of State for Housing, Communities and Local Government was directed to consider the developer’s appeal afresh.


13.       High Court Opens Way for City Housing Development ‘Without
…………Delay’

In the interests of future flexibility, local authorities often understandably wish to keep housing land in reserve for longer-term development. However, as a High Court case showed, the pressing need for more new homes is such that delay cannot always be justified.

The case concerned a proposal to build 55 homes on part of an 11-hectare edge-of-city site which had been designated by a local authority as a protected area of search (PAS). That designation meant that the site would be kept in hand with a view to maintaining Green Belt boundaries and leaving room for the city’s expansion in years to come. The council’s policy was that only temporary developments would be permitted on such sites pending further consideration of their future use as part of a continuing review of the city’s development plan.

In granting outline permission, however, a government planning inspector attached little weight to the conflict between the PAS policy and the proposed development. Ruling the project sustainable, he said that it largely accorded with the existing development plan and that consent should be granted without delay.

In dismissing the council’s challenge to that decision, the Court noted that it did not dispute that it was unable to demonstrate that it had a deliverable five-year supply of available housing land. In finding that the development would be sustainable, the inspector had carefully considered traffic flows, highway safety and air quality issues. He had made no bones about the conflict between the development and the PAS policy and there was nothing irrational or erroneous in his properly reasoned conclusion that that factor deserved little weight.


14.     Peace Threatened by Neighbours’ Building Plans? See a Lawyer
……… Today!

If others’ building proposals threaten to harm your enjoyment of your home, you should not delay in consulting a solicitor. In a case on point, a householder did just that and successfully blocked her neighbour’s plans for a roof terrace.

The woman objected after her next-door neighbour proposed construction of a roof terrace on top of a garage that was sandwiched between their two properties, both of which were locally listed as heritage assets. She raised particular concerns that noise generated by the terrace’s use would disturb her peace.

The local authority nevertheless granted planning permission for the terrace on the basis of a planning officer’s report. He noted that the woman’s windows would not directly overlook the terrace and found that the development would not give rise to unacceptable noise levels. After the woman contacted solicitors, they launched a judicial review challenge to that decision on her behalf.

The High Court found that the officer’s generally thorough report had properly dealt with the issue of airborne noise. However, it did not address the woman’s objection that the terrace would be attached to her flank wall and that its use would transmit significant acoustic vibrations into her home.

The issue of structural noise disturbance had been raised by the woman’s planning consultants prior to the grant of permission for the development and was a relevant consideration that should have been taken into account. The woman’s challenge was upheld and the planning permission quashed.


15.     Lack of Consultation Not Enough to Derail Social Housing
……….Development

Transparency and public consultation are the bulwarks that ensure the fairness of the planning system. However, as a High Court case concerning a social housing development showed, not every lapse in those respects will result in a planning permission being overturned.

A social housing provider wished to demolish a number of garages and replace them with two blocks, comprising six flats. Plans for the development were amended after neighbouring landowners expressed concerns about overshadowing, overlooking and loss of privacy. Planning consent was subsequently granted, but a woman whose home adjoined the site mounted a judicial review challenge.

In ruling on the matter, the Court noted that there was no satisfactory explanation as to why the amended plans had been posted on the relevant local authority’s website on the same day that the permission was granted. That had resulted in the woman and other objectors having no fair opportunity to comment on the plans.

The woman also had understandable concerns about the planning officer’s report on which the permission was based. The report made no direct mention of a balcony which had appeared in the amended plans for the first time. The report’s conclusion that the woman would only be able to glimpse the balcony from her home was open to question but she had been unable to express her views on the issue.

In dismissing her challenge, however, the Court noted that it was obliged to view the report with a reasonably benevolent eye. The issue as to whether the amended plans were unacceptable in privacy terms was a matter of planning judgment. The Court was satisfied that the ultimate decision-maker took all relevant matters into account in reaching a conclusion that was not irrational.

Although the amended plans were undoubtedly different from their predecessors, they had the advantage in privacy terms of removing windows from a flank wall of one of the blocks. The views of the woman’s property from the balcony would be oblique and an opaque privacy screen would be put in place.

In those circumstances, the Court found that the changes to the plans were not so fundamental as to require the council to perform a fresh consultation exercise and that the woman had suffered no material prejudice as a result of her inability to make further representations.


16.       High Court Backs New School under RAF Base Flightpath

Noise is a factor in a great many planning cases, but the need to cater for expanding populations requires a realistic approach and means that the ideal cannot always be achieved. The High Court made that point in backing plans for a new school under the flightpath of an RAF base.

Planning consent had been granted for over 200 new homes in and around a village close to the base and proposals for hundreds more were under consideration. The village school was almost full and the local planning authority (LPA) granted itself planning permission for a new school, with capacity for up to 420 children, on the basis that it was essential to meet projected demand.

A planning officer, on whose report the LPA based its decision, noted that, due to overflying aircraft from the base, noise levels both within and outside the school would substantially exceed recommended levels. However, he concluded that that and other objections were decisively outweighed by the benefits of a brand-new facility to meet the educational needs of local children.

In dismissing a challenge to the permission brought by the local parish council, the Court noted that, during a lengthy consultation exercise, seven alternative sites for the school had been considered and rejected by the LPA on various grounds. High-grade glazing and a mechanical ventilation system would be used to insulate the school’s interior and sound-limiting pods would be erected in its grounds.

The Court acknowledged that references to pupils’ human rights, the UN Convention on the Rights of the Child and the public sector equality duty – which the LPA owed to children with special educational needs – were notable by their absence from the report. However, it was satisfied that the welfare of pupils had been at the forefront of the minds of the officer and councillors who made the decision. The LPA had also not been obliged to carry out full environmental impact assessments in respect of each of the rejected sites before granting planning permission.


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This e-bulletin was first published on 31 May 2019.