We are pleased to bring you the eighth 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 are also delighted to announce that we are merging with City of London-based law firm Sykes Anderson Perry, as part of our continued strategic growth and development. We will be joined by four directors (who will become partners or consultants at Druces), seven fee earners, three secretaries and two business services staff.
The merger means that Druces now has a specialist Leasehold Enfranchisement team. Christopher Sykes, the author of ‘Leasehold Enfranchisement and the Right to Manage’ (published by the Law Society, now in its 3rd edition) will be joining our Real Estate team. He will be joined by Katie Mear and Michelle Goodrum, two senior associates who also specialise in enfranchisement. The team has experience in dealing with collective enfranchisement, right to manage claims, lease extensions and 1987 Act right of first refusals, acting for both landlord and tenants. The team is often instructed by other law firms who do not have expertise in enfranchisement and right to manage work.
The merger will take effect on 1 October 2019.
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. Registration of town or village greens – Court of Appeal clarifies the law
Registering land as a town or village green (TVG) is an effective means of protecting it from development – but it can also effectively sterilise sites which would otherwise be suitable for much-needed new homes. The Court of Appeal tackled that issue in a ground-breaking decision of great interest to property professionals.
The case was the first in which restrictions on TVG registrations – introduced by the Growth and Infrastructure Act 2013 – had come under high judicial analysis. The legislation inserted a new Section 15C into the Commons Act 2006 which, amongst other things, prevents applications to register TVGs where the land concerned has been identified for potential development in a local development plan (LDP).
A local authority had granted a local campaigner’s application to register a plot of land, measuring about 380 square metres, as a TVG. The land was on the edge of a market town and a neighbouring site, which lay outside the settlement’s boundary, had already been developed for housing. The land’s owner, a property developer, successfully challenged the registration before the High Court.
In dismissing the council’s appeal against that decision, the Court of Appeal acknowledged that the plot was not one of 16 strategically important sites that had been specifically earmarked for development in the council’s core strategy. However, the LDP had set a target of more than 1,000 new homes to be built in the town by 2026.
There was therefore a presumption in favour of sustainable development within the boundaries of the settlement, and the LDP’s clear statement that suitable sites in the town would be built on necessarily implied that such sites had been identified for potential development. In those circumstances, to allow the plot’s registration as a TVG would frustrate the broad objectives of the LDP.
2. Charity’s abortive £8 Million properties sale triggers High Court test case
Before disposing of real property assets, charities are required to meet a number of procedural safeguards that are designed to ensure that the best price reasonably obtainable is achieved. The High Court gave detailed consideration to those provisions in a case concerning a charity’s abortive sale of two commercial buildings.
The charity contracted to sell the properties for more than £8 million. The buyer paid a £410,000 deposit but failed to complete the purchase by the contractual deadline. In those circumstances, the charity purported to rescind the contract. The properties were eventually sold, about a year later, for £5.5 million.
The charity launched proceedings, seeking declarations that the contract had been validly rescinded and that it was entitled to keep the deposit. In seeking summary judgment on its claim, it submitted that the buyer’s defence had no reasonable prospect of success. She, however, argued that the contract was void, voidable, or unenforceable, due to the charity’s failure to meet the requirements of the Charities Act 2011, and that the deposit should be returned.
In ruling on the matter, the Court noted that the charity had not sought a court order, or the sanction of the Charity Commission, before contracting to sell the properties. In those circumstances, the Act required its trustees specifically to consider, in the light of a written report from a qualified surveyor, whether the price offered was the best that could reasonably be obtained. They were also obliged to publicly advertise the properties, unless advised by a surveyor that that would be contrary to the charity’s best interests.
The Court noted that the contract did not state on its face that the properties were held by a charity, a further requirement of the Act. Although the charity’s trustees had obtained an expert valuation report prior to exchanging contracts, the properties had been placed on the market some time beforehand. The properties had also not been advertised and the charity had received no advice which obviated that requirement.
The charity pointed out that the properties had been valued at £7.5 million and argued that the substantially higher price offered by the buyer could thus be viewed as the best reasonably obtainable. It submitted that any failures to comply with the Act should not be treated as fatal to the contract. In refusing the summary judgment application, however, the Court considered that a full investigation of the steps taken to market the properties and the trustees’ decision-making process was required. The matter would therefore proceed to trial.
3. Stripped-out office premises have nil rateable value – Guideline Ruling
In a guideline decision of great interest to commercial property landlords, the Upper Tribunal (UT) has ruled that prestige office premises which were stripped bare in preparation for the arrival of a new tenant had a nil rateable value.
The case concerned two floors of an iconic 50-storey office block which, in line with the landlord’s usual practice, had been stripped to a shell on a tenant’s departure. A local authority valuation officer (VO) took the view that the premises had a rateable value in excess of £1.8 million but, after the landlord appealed, the Valuation Tribunal for England set that value at nil.
In challenging that decision before the UT, the VO pointed to the requirement of the Local Government Finance Act 1988 that commercial premises are to be valued on the assumption that, immediately before a tenancy begins, they are in a state of reasonable repair.
In rejecting the appeal, however, the UT noted that that statutory assumption did not entirely supersede the common law reality principle that a property is to be valued as it in fact exists on the day of valuation. After the relevant premises were stripped to the bone, they ceased to be capable of beneficial occupation and were thus not a unit of property – or hereditament – at all. The ruling meant that, as a matter of administrative convenience, the stripped-out premises would remain on the local authority’s rating list at a nominal value of £1.
4. What is a ‘Mast’? Telecommunications industry suffers court setback
Very occasionally, issues of great commercial or social importance can hinge on the correct legal definition of a single word. That was certainly so in one case in which the meaning put upon the word ‘mast’ by the Court of Appeal had a major impact both on the telecommunications industry and the UK’s streets.
The case concerned nine antennae which had been installed on the roof of a block of flats bordering a conservation area. They were secured to poles just under three metres in height. At the behest of a telecommunications company, the local authority certified that the installation was permitted development, thus not requiring planning permission.
A judge, however, overturned that decision after a local resident mounted a judicial review challenge. In ruling on the company’s appeal against that decision, the Court noted that the Town and Country Planning (General Permitted Development) (England) Order 2015 confers permitted development rights on small, building-based, antennae and cell systems.
However, masts installed on buildings that are less than 15 metres in height and within 20 metres of a highway are excluded from such rights. Both those height and distance criteria applied to the relevant apparatus and the outcome of the appeal therefore depended entirely on whether the supporting poles could properly be described as masts.
The company argued that the word ‘mast’ denotes a tall, self-supporting structure that supports antennae at a height where they can satisfactorily send and receive radio waves and is capable of providing 360-degree coverage from a single position.
Rejecting the appeal, however, the Court drew upon the Oxford English Dictionary in finding that, in a telecommunications context, a mast means any upright pole or lattice-work structure whose function is to support an aerial or antenna. The poles in question thus did not have to be ground-based or of any particular height, scale or design in order to qualify as masts. The local authority having erred in law, it was directed to reconsider its decision in the light of the Court’s ruling.
5. Orthodox Jewish Housing Charity fends off unlawful discrimination claim
Discrimination in favour of one section of society over others can in some cases be justified as a proportionate means of achieving a legitimate aim. In a guideline ruling, the Court of Appeal found that that exception applied to a social housing charity that preferred Orthodox Jewish applicants when allocating tenancies.
The charity’s objective was to benefit society as a whole, but its rules gave priority to Orthodox Jews. Pressure on its housing stock was such that, in practice, tenancies were only ever granted to members of that community. A homeless mother of four children, who was not an Orthodox Jew, launched proceedings under the Equality Act 2010, arguing that the charity’s policy was unlawfully discriminatory.
Her claim was, however, dismissed by the High Court on the basis that the charity’s policy was a proportionate means of overcoming a number of disadvantages shared by members of the Orthodox Jewish community. Levels of poverty and deprivation were unusually high amongst Orthodox Jews in the relevant area and their tendency to have larger families meant that they had a particular need for larger homes. They were at risk of anti-semitic harassment and assault and had an understandable desire to live among their own community. There was also evidence that they faced prejudice in the private rental market.
In dismissing the mother’s appeal against that ruling, the Court of Appeal noted that the homes provided by the charity made up a minuscule proportion – about 1 per cent – of the overall social housing stock in the area. Members of the Orthodox Jewish community have many and compelling needs associated with their faith, which is itself a protected characteristic. The allocation of the charity’s properties to non-members of the Orthodox Jewish community would fundamentally undermine its charitable objectives and there was no more limited means of achieving the legitimate aim.
The Court also rejected the mother’s challenge to the local authority’s policy of only referring Orthodox Jewish applicants to the charity. The charity’s allocation rules being lawful, the council had no legal right or power to demand that they be changed. Given the high level of child poverty in the Orthodox Jewish community, the council’s policy was also justified by its duty to promote child welfare.
6. Extension or Annexe? Educational charity wins VAT appeal
What is the difference between an annexe and an extension? That may seem a very narrow distinction, but the tax regime is replete with such fine points and it made a crucial difference to an educational charity in its successful appeal against a VAT demand.
The charity moved the premises of its nursery and primary schools to a 120-year-old former dwelling. It accepted that VAT was payable at the standard rate on renovation and modification works carried out on that building. However, it also constructed a new, adjoining building that provided a large, flexible space, suitable for use as an assembly hall or gymnasium. The charity argued that materials used in the construction of the new building, and sums it paid to the contractors, were zero-rated for VAT purposes. HM Revenue and Customs, however, did not agree.
In ruling on the matter, the First-tier Tribunal (FTT) noted that the Value Added Tax Act 1994 provides that construction of a building intended solely to serve a charitable purpose benefits from VAT zero-rating. However, that advantage does not apply to enlargements or extensions of existing buildings. The case therefore hinged on whether the new building was an extension or, as the charity contended, an annexe.
In upholding the charity’s appeal, the FTT noted that an extension generally refers to a building which provides an additional section or wing to an existing building. The term annexe, on the other hand, connotes a structure that is adjoining to, but either not integrated or only tenuously integrated with, an existing building.
The new and existing school buildings shared a party wall. However, their means of access were entirely separate and it was only possible to pass from one to the other by traversing some distance outdoors. The modern design of the new building was very different from the existing building and it could function independently, being fitted with its own toilets, kitchen, storage and office spaces. The new building was therefore an annexe and the costs associated with its construction benefited from zero-rating.
7. Business rates evasion – High Court spots sham commercial lease
Sham legal documents are created for all sorts of nefarious purposes, but judges are thankfully well practised at spotting them. In a case on point, a bogus lease created with the intention of evading business rates failed to convince the High Court.
After receiving non-domestic rates demands for over £62,000 from a local authority, a commercial property owner claimed that it had not been in rateable occupation of the premises during the relevant period, having leased them to a corporate tenant. The purported lease did not, however, fool a district judge, who rejected the owner’s challenge to the bills.
In dismissing the owner’s appeal against that decision, the Court noted that the tenant was an off-the-shelf company that had been dormant throughout the relevant period. It had assets of £1, no revenue or expenditure and was ultimately wound up for debt, at the behest of a different local authority.
The lease as originally drafted was an inconsistent and nonsensical document, not least because it did not set a contractual term of months or years for which the lease would run. Untrue evidence had been given to the Court and the reality was that no commercial bargain had ever been entered into. The owner had granted licences of parts of the premises to other businesses in a manner that would have been invalid and illegitimate had the lease been anything other than bogus.
There was never any bona fide intention to pass rateable occupation to the tenant, which was a man of straw and had paid no rent. It never had the means to pay the rates, nor had it ever been intended that it would do so. The evidence that the lease was a sham was overwhelming and the Court found that it had not created either a contractual tenancy or a licence to occupy. The district judge was therefore right to find that the rates liabilities fell directly upon the owner.
8. What duties are owed by building control inspectors? Court of Appeal ruling
Do approved building control inspectors, whose task it is to ensure that construction works comply with building regulations, owe a duty of care to a purchaser of a defective property? In an important test case for property professionals, the Court of Appeal has answered that question decisively in the negative.
The case concerned a block of flats the construction of which was alleged to be so defective that remedial works would cost almost £3 million. Long leaseholders of the flats, together with their management company, launched proceedings against, amongst others, a company that had acted as approved inspector of the works under the Building Act 1984.
The leaseholders argued that the company owed them a duty of care under Section 1(1) of the Defective Premises Act 1972, which imposes a responsibility on anyone who takes on work in connection with the provision of a dwelling house to ensure that the works are performed in a professional and workmanlike manner. Their claim against the company was, however, struck out by a judge.
In dismissing the leaseholders’ appeal against that decision, the Court found that Section 1(1) applies only to those who positively contribute to the creation of a dwelling, including builders, architects and engineers. The company did not fall within that category as its role was the essentially negative one of ensuring that no work was done that contravened building regulations.
The company’s function as approved inspector in certifying or refusing to certify the block as building regulations compliant was far removed from the work of providing or creating a dwelling house. It had no influence over the design or construction of the block, save to stipulate that they must comply with the law.
The Court’s ruling did not affect the leaseholders’ continuing claims against the developer of the block, the contractors who built it and the National House Building Council as provider of a Buildmark insurance policy.
9. Unlicensed houses in multiple occupation – Landlords take note!
Failing to licence houses in multiple occupation (HMOs) when required to do so is a criminal offence and ignorance of the law is no defence. The First-tier Tribunal (FTT) resoundingly made that point in ordering residential landlords to repay half the rent they received from student tenants of an unlicensed property.
The case concerned a two-storey house which was rented to five students under year-long assured shorthold tenancies. The private landlords were three elderly members of the same family. During the course of the tenancies, the house became subject to a local authority requirement that it be licensed as an HMO. However, it remained unlicensed for a nine-month period.
After four of the students applied for a rent repayment order under Section 41 of the Housing and Planning Act 2016, the FTT found that the landlords had committed an offence under Section 72(1) of the Housing Act 2004 by renting out an unlicensed HMO. In those circumstances, the FTT was empowered to order reimbursement of all the rent paid by the students throughout the relevant period, a total of over £14,000.
The FTT noted, however, that the house was reasonably suitable for occupation by five students. The landlords had not been prosecuted and their default had arisen from ignorance rather than an intention to deliberately flout the law. The tenants’ complaints about the condition of the property were minor in nature. In the circumstances, the landlords were ordered to repay half the rent they had received during the relevant period, a total of £7,035.
10. ‘Inconsistent’ planning decisions threaten sports stadium’s future
The credibility of the planning system depends on consistent decision-making. That aim was, however, not on the face of it achieved when a local authority concluded that a sports stadium development would be both detrimental to, and actively promote, the openness of the Green Belt.
The council, which owned the development site, first granted itself planning consent on the basis of an officer’s report which acknowledged that the project would have a limited adverse impact on openness, but which advised that that was outweighed by the benefits of the scheme. That permission was later overturned by a judge on the basis that the council had erred in finding that the stadium was an appropriate development within the Green Belt.
The day after the judge’s decision, the council again awarded itself planning consent, this time in reliance on an officer’s report which stated that the development would help to preserve the openness of the Green Belt. That decision prompted a judicial review challenge by the owner of an adjacent hotel and restaurant.
The council argued that, the first permission having been quashed, it was entitled to ignore it when granting the second. However, in ruling on the matter, the High Court found that it remained a material consideration and that the apparent inconsistency between the two decisions at least required a reasoned explanation.
The applications were almost identical and it was incumbent on the officer and the council’s planning committee to address the apparent volte-face. Public confidence in the decision-making process was particularly important given the judicial criticism in respect of the first consent and that the council was itself the beneficiary of the planning permission.
In quashing the permission, the Court noted that, in the absence of any explanation, it was impossible to know whether the officer or the committee were even aware that they had changed their position. The already-built stadium had been operational for well over a year, but the Court’s ruling meant that it had no extant planning permission and was thus vulnerable to enforcement action.
11. What is a highway? High Court ponders the issue in planning case
There are roads and there are highways, but is there any real distinction between the two that can be legally defined? The High Court addressed that important issue in a case of interest to property and planning professionals.
A property developer obtained outline planning permission to construct business units on an edge of town site. The project was part of a larger mixed development, including the creation of two new villages. The consent was subject to numerous conditions, one of which required the construction of access roads to the site at the developer’s expense. Those roads were required to be built so as to ensure that each unit was served by a fully functional highway.
The developer subsequently sought a certificate of lawfulness of proposed use or development with a view to privatising those roads, rendering them accessible to the public only with the permission of the site’s owner or its agent. The objective was to defray part of the cost of constructing the roads by seeking contributions from other developers engaged in the wider scheme in return for granting licences to use the roads. The local authority refused the developer’s application, but a certificate was granted on appeal by a government planning inspector.
In ruling on the local authority’s challenge to the latter decision, the Court noted that the case hinged on the correct definition of the word ‘highway’. The council argued that the word means a way over which the public has rights to pass and repass, with or without vehicles. The developer contended that, read in context, the condition merely required that the access roads be built to such a scale and standard that they were capable of being used as highways.
In upholding the council’s appeal and quashing the inspector’s decision, the Court noted that ‘highway’ can bear a number of different meanings in law and common parlance. However, not one of those various definitions suggested that a private road over which the public has no right of way can ever be described as a highway.
The development site was never intended to be a self-contained cul-de-sac and the word ‘highway’, as used in the condition, could not be viewed merely as a synonym for ‘road’. The council had expressly intended that the access roads should provide publicly accessible links to the wider development. The condition was clear on its face and the council had thus rightly refused to grant the certificate.
12. High Court planning decision boosts the fight against climate change
The threat of climate change is playing an ever more important part in the formation of planning policy. A High Court case on point concerned a householder’s fear that his neighbour’s extension plans would block light from his domestic array of solar panels.
In direct sunlight, the panels attached to the south-facing wall of the householder’s property were capable of generating up to 11kW daily. He objected to his next-door neighbour’s plan for a rear extension on the basis that it would overshadow his micro-power plant, greatly reducing its output.
The local authority, however, granted consent for the extension on the basis that it would be in keeping with the character of the area and would cause only a negligible reduction in sunlight reaching the householder’s garden and living accommodation. The council found that loss of light to the panels only engaged the householder’s private rights and was irrelevant in planning terms.
In upholding the householder’s judicial review challenge to that decision, the Court ruled the council’s approach irrational. Although his solar panels made only a very modest contribution to the reduction of carbon emissions, the National Planning Policy Framework specifically recognised mitigation of climate change as a legitimate and material planning consideration.
The council had given no consideration to why the householder’s ability to use sunlight as an energy source fell into a different category from his ability to enjoy sunlight in his garden and living room. His case that the council had been wrong to treat his concerns as immaterial was in the circumstances unanswerable. The planning permission was quashed.
13. Over-analysing planning officers’ reports is a mistake, says Court of Appeal
Local authority planning officers are highly qualified professionals – but they are not lawyers or judges and their reports must not be read with an over-critical legal eye. The Court of Appeal made that point in opening the way for construction of a new home in the countryside.
The case concerned plans to partially demolish a cluster of commercial and agricultural buildings and to extend and convert a remaining brick structure into a three-bedroom house. The local authority followed a planning officer’s advice and granted consent in 2018, despite a neighbouring landowner’s fierce objections. The landowner’s judicial review challenge to the permission was subsequently rejected by a judge.
Appealing against that outcome, the landowner argued that the officer gave too much weight to an unimplemented planning permission for an identical development which had been granted in 2015. Circumstances were said to have changed fundamentally in the intervening years, not least because the council had recently achieved a five-year supply of housing land, as required by the National Planning Policy Framework.
In dismissing the appeal, however, the Court found that the officer did not make the mistake of applying a tilted balance in favour of what would otherwise have been an inappropriate development in a rural area. She also took into account the fact that the 2015 permission was days away from expiry when the 2018 consent was granted and that there was no practical possibility of the former being implemented. The weight that she gave to the still extant 2015 permission was ultimately a matter for her independent planning judgment.
Giving guidance for the future, the Court noted that planning officers’ reports must not be read in an overly critical spirit or with an unrealistic view of what needs to be set out in assessing proposals on their merits. Judges will only intervene if there is some distinct and material defect in a report, such as a clear misunderstanding of relevant national or local policy. The officer in the present case made no such error and the 2018 permission was not open to criticism on any public law grounds.
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This e-bulletin was first published on 30 September 2019.