Commercial property Summer 2009


Absence of Claim Does Not Mean Claim Not Genuine
When council tax isn’t paid, a council will normally take action to recover it. In the case of a company with serious council tax arrears and a balance sheet showing assets from which payment might be forthcoming, a winding-up petition is likely to be served.
In a recent case, this was precisely what happened to a company which owned several residential properties. When the winding-up petition was heard, the company concerned resisted it on the ground that it had overpaid council tax. It indicated that it was intending to raise a counterclaim. Several of the properties on which the tax had been charged were empty and were blighted because of the fact that compulsory purchase orders were pending on them. The properties should therefore have received relief from council tax, because properties are exempt when they are empty in such circumstances.
As the counterclaim would exceed the debt concerning which the winding-up order was sought, a stay of the order was requested.
In court, the council argued that since no claim had yet been made by the company, its request for a stay of liquidation proceedings should be rejected.
The court ruled that the winding-up petition should proceed. The company appealed. The winding-up order was then withdrawn (the company having paid the tax in dispute), so the appeal was largely about who would pay the legal costs.
In the Court of Appeal, it was decided that just because the company’s claim had not yet been pursued did not mean that there was not an arguable case for it or that it was not genuine.
Regarding costs, in the view of the Court, the original judge was entitled to decide that the evidence adduced by the company was insufficient to support its case. The costs were therefore awarded to the council.
Prompt action is especially important when dealing with claims against entities that are likely to seek a winding-up order if their own claims are not met. Contact <<CONTACT DETAILS>> for advice on all contentious property matters.
Partner Note
Bolsover District Council v Dennis Rye Ltd. Reported in the Times, 19 May 2009.
Applicable law: Council Tax (Exempt Dwellings) Order (SI 1992 No 558).
Arbitration Not Always Final
When a dispute over a lease is referred to arbitration under the provisions of the lease, the decision of the arbitrator can be overturned in some circumstances. If the arbitrator’s decision is seriously flawed – for example because it fails to take into account all the relevant information – it can be challenged.
This is just what happened in a recent case in which, following a rent review, the rent payable by the head tenant of a multiple-lease property was referred to an arbitrator for determination.
The landlord contended that the new rent should be the sum of the rents payable by the tenants, net of management costs. The head tenant argued (optimistically) that since there was no ready market for the lease, the rent should be a peppercorn. Unsurprisingly, the arbitrator decided that the landlord’s argument was to be preferred. When determining the rent payable, however, the arbitrator made no allowance for the profit element required by the head tenant. The decision was challenged and the court agreed with the challenge.
The court took the view that the arbitrator’s failure to allow for the head tenant’s profit, despite it not having been raised in the submissions, was a serious failure.
The matter was remitted back to the arbitrator to be determined anew.
Says <<CONTACT DETAILS>>, “This is an unusual case, as it is difficult to see why the head tenant failed to raise the issue of the profit element in the first place. However, when faced with a fundamentally flawed decision, it is a relief to know that redress can still be obtained.”
Partner Note
Metropolitan Property Realizations Ltd. v Atmore Investments Ltd. [2008] EWHC 2925 (Ch).
Buying from an Administrator – Pitfalls
With businesses becoming insolvent in large numbers, opportunities abound to acquire assets from their administrators. However, the low prices sought for the assets are due, at least in part, to the additional risk to the purchaser.
Here are some of the main issues to be aware of when buying property from an administrator:
  • Vacant possession of a property will not normally be guaranteed and the cost of clearance of items left in the building should be borne in mind;
  • No guarantees or warranties regarding the property will be given – undertaking proper due diligence to reduce risks is strongly advised;
  • There may be items that appear to be a part of the property being sold which do not in fact belong to the insolvent business; and
  • The administrator acts only as agent for the insolvent company and will accept no liability for errors or omissions.
Buying a property from an administrator is a risky business. We can help you to control the legal risks.
Claims from Insolvent Contractors
When contractors have been retained to undertake a project but fail to meet the milestones agreed in the contract, it is normal for there to be a procedure by which the contract can be ‘determined’ (brought to an end).
In a recent case, a council sought to determine the contract of a contractor, which referred the dispute to arbitration to see whether the determination of the contract was lawful. The arbitrator found in favour of the contractor.
The council was concerned that the contractor would seek compensation as a result and that if compensation were paid, it would disappear to the benefit of the contractor’s creditors, the contractor being insolvent on a balance sheet basis. It therefore counterclaimed against the contractor and disputed the arbitrator’s finding that the determination of the contract was not lawful.
The contractor failed to file a defence to the counterclaim in time, so the council was given judgment. The contractor then applied to have the judgment set aside. The court held that the failure to file a defence in time was an oversight. It also considered that where an insolvent party obtains an adjudication, there is a risk that the court will stay its judgment on the ground of insolvency. In other words, the insolvent party could win, but not be able to enforce the decision. This is likely to apply unless the financial situation of the insolvent party was similar at the time the contract was made, in which case the risk was already present for the other party, or the insolvency was due in significant part to the non-payment by the other party.
In many cases, therefore, a ‘victory’ by the insolvent party will be a hollow one. However, simply ignoring claims by such companies is unwise. The ability of an insolvent company to pursue such a claim could be attractive to investors who might seek to inject funds into the company for the specific purpose of fighting (and enforcing) the claim.
Contact <<CONTACT DETAILS>> for advice on any commercial property or landlord and tenant matter.
Partner Note
Mayor and Burgesses of the London Borough of Camden v Makers UK Ltd. [2008] EWHC 1836 (TCC). See
Clarity the Key in Contracts
Clarity in property contracts is crucial, as is illustrated by a recent decision of the Court of Appeal.
The case concerned a property deal in which planning permission had to be obtained. The contracts for such deals are often conditional on the granting of planning permission. In this case, however, the scenario was somewhat different. The buyer wished to turn the property being purchased into flats, which required the permission of a third party on account of a covenant on the property that existed because it was in a conservation area.
The vendor agreed to meet the cost of obtaining the release of the covenant, which was estimated not to exceed £12,000. The third party rather oddly refused to release the covenant until planning permission for the development had been received. The buyer decided to purchase the buildings (at a cost of £862,000) before planning permission was granted.
The way the contract was drafted was far from clear and it did not anticipate the actual circumstances. As a result, a term would have to be implied into it to deal with the position as it transpired in fact. The buyer claimed that it should receive a discount on the purchase price for the estimated cost of obtaining the release of the covenant. The vendor claimed that no discount was payable, on the basis that, at the time of sale, the covenant had not been released. In court, the judge did not support either interpretation of the contract, so the dispute wound up in the Court of Appeal. There, LJ Arden commented that, “If the agreement is susceptible of an interpretation which will make it enforceable and effective, the Court will prefer that interpretation to any interpretation which would result in its being void. The Court will also prefer an interpretation which produces a result which the parties are likely to have agreed over an improbable result.
The Court concluded that the appropriate discount must be “an amount which is reasonably required for the purpose of obtaining a release or variation of the applicable restrictive covenants such as would enable the Development…to take place.”
What is slightly surprising is that this dispute ended up in the Court of Appeal at all, with both sides meeting their costs – likely to be several times the sum under dispute.
The more variables there are in a contract, the more important it is that it is clearly drafted. For advice on all property and contract matters, contact <<CONTACT DETAILS>>.
Partner Note
Anglo Continental Educational Group (GB) Ltd. v Capital Homes (Southern) Ltd. [2009] EWCA Civ 218. See
Does Right of Access Mean Right to Park?
A case dealing with the parking rights relating to three adjoined houses (all part of a development of older agricultural buildings) has been decided by the Court of Appeal. It has implications for developers of similar properties, such as barn conversions.
The case produced (in the judge’s words) a “snowstorm of incidents and issues” relating to the right of the owners of one of the houses to park on land adjacent to the properties and in spaces in the lane serving them. The Court concluded that for the right to park to be implied by a right of vehicular access, the ability to park must be ‘reasonably necessary’ for the exercise or enjoyment of the land being accessed. It is not sufficient that the right to park is desirable. Parking must be necessary to make proper use of the accessed land. In other words, there is no automatic right to park if there is a right of vehicular access to a piece of land.
In her conclusion, LJ Arden commented that, “There is a common misunderstanding that an Englishman’s home is his castle in the sense that he can build walls, put up gates and do other acts on his land whenever he chooses, and without regard for his neighbours… While it is often true that a person can do what he wants on his own land, it is not always so. The law expects neighbours to show some give and take towards each other… Parties to other boundary disputes and their advisers should also, at all times, have this point firmly at the forefront of their minds, and seek to resolve their disputes accordingly, and without resort to complex and expensive litigation.
If you are considering buying land where there may be issues over access, parking or use of adjoining land, it is important to make sure that your legal rights are clear in the relevant documentation. Contact <<CONTACT DETAILS>> for advice on property purchases and sales.
Partner Note
Waterman and Waterman v Boyle and Gwilt [2009] EWCA Civ 11. See
Failure to Make Status Clear Stymies Possession Claim
When a local authority provides accommodation for a homeless minor, it must be especially careful in the documentation it uses. This principle is illustrated by the decision in a recent case before the Court of Appeal, which meant that a council was unable to gain possession of a property that it had let to a young woman when it brought proceedings to evict her on the grounds of her anti-social behaviour.
The case arose because the local authority accepted that it had a duty to house the young woman, who was 16 years old and homeless. The authority housed her in a flat and a written agreement was put in place. Under English law, a minor cannot have an ‘estate in land’, so she could not validly execute the lease document.
The minor’s behaviour led to many complaints from other tenants, so the council served a notice on her to quit and sought to repossess the flat. A repossession order was granted. The minor appealed.
The minor’s legal advisers used a rather ingenious argument. The agreement with her was written in the standard form used for adult tenants, but ran until she was 18. The document did not state anywhere within it that the tenancy was in any way qualified. Since she could not be party to the lease, her advisors argued that the council must be holding the premises on trust for her. The council could not therefore issue her with a notice to quit without committing a breach of trust.
The council argued that the agreement was for an agreed term of years and was in effect the grant of a licence.
The Court rejected the council’s argument. If it had intended to grant something other than a tenancy, the documentation should have made that clear.
Says <<CONTACT DETAILS>>, “This is another instance where a failure to draft a document correctly led to an unwelcome outcome for the organisation drafting it. We can assist you in making sure that your documentation is drafted to protect your rights.”
Partner Note
Elyarna Alexander David v Mayor and Burgesses of Hammersmith and Fulham London Borough Council [2009] EWCA Civ 259.
Failure to Occupy Scuppers Change of Use
When a property is used in contravention of planning law for a period of ten years (four years when it relates to an unauthorised structure or an unauthorised use as a dwelling), the owner of the property concerned can apply for a certificate of lawful use to legitimise the new use.
Recently, the owner of a cottage in the Chilterns did just that, applying for a certificate in regard to the removal of an agricultural occupancy condition, which is a condition which, in rather simplistic terms, requires the property to be occupied by someone who is engaged in agriculture. Removal of an agricultural use condition adds greatly to the value of a rural property, as it can then be sold to people other than agricultural workers – for example, commuters or those looking for a second home.
The property owner probably thought there would be no problem with the application. However, for such an application to be successful, the applicant must show that there has been ten years’ continuous use up to the date of the application. On the date of the application, the cottage was not occupied. Since there was no breach of the planning condition when it was unoccupied, the certificate of lawful use could not be granted: there had not been ‘continuous use’ in breach of the planning regulations for the requisite period.
This case shows how important it is to understand the conditions applicable to planning law and to abide by them.
Partner Note
Ellis v Secretary of State for Communities and Local Government and Chiltern DC [2009] EWHC 634 (Admin).
Housing Association Wins Over VAT Claim
Sometimes, you have to gaze on in awe at just how far the authorities will go in pursuing lost causes when it comes to tax.
In a recent case, a housing association, which is a registered social landlord, was taken to task over a claim to recover input VAT. The supply of registered social housing is an exempt supply, which means that the input VAT paid by a housing association cannot be reclaimed. However, the association had set up a subsidiary to carry out development projects (which are not VAT exempt) and it was registered for VAT. The association then transferred to the subsidiary the benefit of its development projects.
Because the transfer was a taxable supply, the association claimed the recovery of the input VAT relating to the projects transferred.
HM Revenue and Customs (HMRC) took a dim view of this and succeeded in persuading the VAT Tribunal that the input tax should be ‘blocked’, since it was related to the exempt supply of social housing. Unsurprisingly, the housing association appealed the decision.
The High Court agreed with the housing association’s argument that the input tax which was reclaimed was directly related to the taxable supply of development and not to the wider supply of social housing. It was therefore recoverable.
The moral of the story is that if you are sure you are right, don’t give up. Property tax and VAT can be complicated and HMRC often make challenges on tenuous grounds to tax treatments adopted.
Partner Note
Community Housing Association Ltd. v HMRC [2009] EWHC 455 (Ch).
In Brief
Building VAT Cut on the Cards?
According to a press release by the Royal Institute of British Architects, the rate of VAT is to be cut to 5 per cent for home maintenance and repair services, a move that should help the construction and related industries.
However, no government announcement on this has yet been made, and is unlikely to be in the near future despite extensive lobbying by the building industry. The autumn pre-budget statement is therefore the next time such an announcement is likely.
Partner Note
MEPs voted in February to approve a cut in VAT for this type of supply. See
In Brief
Repossessions Fall
According to figures released by the Ministry of Justice, the number of property repossessions for mortgage and rent arrears fell sharply in the first quarter of 2009 compared with 2008. The drop was more than 40 per cent and was far larger than anticipated.
It is thought that the reasons for this were reductions in interest rates, which make mortgages more affordable, and the reluctance of landlords to seek to repossess premises when rent is in arrears because of the potential difficulty of finding new tenants.
Partner Note
Reported in New Law Journal, 22 May 2009.
Inconsistency Defeats Right to Rescind
In a recent case involving an attempt to rescind a contract to purchase a leasehold property, the High Court ruled that where a special condition of sale is written into a contract and this is inconsistent with the usual standard conditions of sale, the standard conditions of sale will prevail unless the relevant clauses are specifically excluded.
In the case in point, the buyer of a leasehold issued a notice rescinding the purchase some weeks after the completion date in the contract. The contract itself had been put ‘on hold’ while the vendor sought to obtain the consent of the landlord to the assignment of the lease. The buyer pulled out of the contract without giving any notice.
The vendor argued that the presence of a condition in the contract invalidated the purchaser’s right to rescind, but because the term was inconsistent with the standard conditions of sale, this argument was rejected.
However, the behaviour of the purchaser, which was pushing for completion only days before issuing its rescission notice and which delayed taking action for a long period after the completion date, meant that it had lost its right to rescind the contract. To be valid, the right to rescind should be exercised promptly once the contractual completion date is past.
We can advise you on any aspect of contract or property law.
Partner Note
Alchemy Estates Ltd. v Astor [2008] EWHC 2675 (Ch).
There is a more detailed write up in the Solicitors Journal, 17 February 2009 at page 18.
Landlord and Tenant – Landlord’s Right of Entry
Most leases contain a clause which allows the landlord a right of entry to the let premises for a variety of purposes and also contain clauses which require the landlord to exercise this right in a reasonable way, to limit inconvenience to the tenant and to make good any damage caused. The courts tend to interpret such clauses in terms of what is reasonable given all the facts.
In a recent case, a landlord wished to enter warehouse premises in order to carry out a survey (a permitted purpose under the lease), which would involve digging 13 bore holes, all to a depth of five metres or more. Needless to say, the tenant did not wish this to take place and contested it in court. Oddly, the lease did not contain any specific provision to compensate the tenant for disturbing its right to ‘quiet enjoyment’ of the premises.
The court concluded that the proposed survey was a more substantial exercise than one would anticipate from the ordinary dictionary definition of the word and would interfere with the tenant’s quiet enjoyment of the premises. To adopt the landlord’s interpretation of the lease would allow it to undertake prospecting if it so wished – clearly not what was intended when the lease was signed.
If you have problems with your landlord or tenant, contact <<CONTACT DETAILS>> for advice.
Partner Note
Heronslea (Mill Hill) Ltd. v Kwik-Fit Properties Ltd. [2009] EWHC 295.
Landlord Pays Price for Actions
A landlord who allowed his son to occupy a property after the tenant vacated it half-way through his lease was left to count the cost after a recent decision of the Court of Appeal.
The tenant rented a large house in London, taking out a three-year lease. He was unhappy with the property and vacated it half way through the lease, returning the keys to the landlord, who went to court to claim the rent for the balance of the lease.
The tenant claimed that various repairs to the property that were the responsibility of the landlord had not been carried out, to the extent that the lease was repudiated (the legal term for being brought to an end by non-compliance with the terms of the agreement). The tenant then argued that the landlord had, by his actions, effectively accepted the cessation of the lease (‘by surrender’). In this circumstance, the tenant must demonstrate that the landlord’s behaviour was such as to prove that he had accepted the lease was at an end.
To that end, the tenant provided evidence that the landlord had carried out a number of equivocal actions such as:
  • accepting the keys from the tenant;
  • entering the property to make necessary repairs and prepare an exit inventory;
  • redecorating and partly refurnishing the property and putting it back on the market to let; and
  • allowing his son to live in the property after the tenant left and before the end of the lease period.
The question before the Court was whether the landlord and tenant had acted towards each other in a way that was inconsistent with the continuation of the tenancy.
Although the landlord’s solicitors continued throughout to insist that the tenancy was still active, the totality of the landlord’s actions, especially allowing his son to live in the property, was consistent with the landlord having accepted that the lease was at an end.
Says <<CONTACT DETAILS>>, “Problems with tenants are becoming increasingly common. We can help you protect your position when a tenant vacates, ceases to pay rent or causes other problems.”
Partner Note
Artworld Financial Corporation v Safaryan [2009] EWCA Civ 303. See
New Planning Directions
Under the Town and Country Planning (Consultation) (England) Direction 2009, which came into force on 20 April 2009, a Local Planning Authority is now required to refer the following applications to the Secretary of State:
  • Inappropriate development in the Green Belt involving buildings of 1,000m² or larger or any other development which would have a significant impact on the openness of the Green Belt by reason of its scale, nature or location;
  • Various types of development outside town centres, which are not in accordance with the Development Plan and involve a building of 5,000m² or larger (including any smaller extension which would bring the size up to that figure). The size limit includes any existing nearby developments that are substantially completed or plans for development submitted within the preceding five years;
  • Proposed development of playing field land of various sorts;
  • Major development in a flood risk area where the Environment Agency has objected; and
  • Proposed development on World Heritage Sites where there is an objection from English Heritage which has not been withdrawn.
Says <<CONTACT DETAILS>>, “Contact us for advice on any planning law matter.”
Partner Note
The document can be downloaded at
Right to Light – Right Preserved
The right to light has been a continual source of disputes over the years and the Court of Appeal has recently heard another case dealing with this contentious subject.
It concerned a company that owned a piece of land and which made an agreement with a developer that allowed the developer to compromise its right to light. In the agreement, made in 1999, the company undertook to take no action to enforce its right to light.
Years later, a redevelopment project was planned for the land, which was the result of a compulsory purchase order. It was a much more substantial development than that envisaged in 1999 and the question arose as to whether the original agreement prevented the claimant from asserting its right to light, which would be materially affected by the new development.
Key to the decision was the wording of the original agreement in 1999. In it, the right to light was acknowledged, but the claimant had undertaken not to take action to enforce the right. However, under the proposed development at that time, there would not have been a material effect on the light. The Court ruled that the earlier agreement did not mean that the claimant had abandoned its right to light.
Contact <<CONTACT DETAILS>> for advice on any commercial property or landlord and tenant matter.
Partner Note
G and S Brough v Salvage Wharf Ltd. and another [2009] EWCA Civ 21. See
Tenant Obtains Rights Not Excluded from Lease
The right to graze animals is a valuable right for farmers and a recent case in the Court of Appeal dealt with the right of a tenant to graze livestock on common land.
The tenant had rented land which included the right to graze livestock over a ten-acre area of adjacent common land, owing to a registered right of common pasture. The right could be exercised by the landowner one year in three. There were restrictions on the number and type of animals that could be put out to pasture on the land.
When the common land was fenced off from the tenanted land by people representing the commoners of the village, the tenant brought court action against them under the law of nuisance. He sought an injunction to restrain them from preventing him from accessing the land.
The tenant’s argument was simple. The right to pasture attached to the land he tenanted. It had not been specifically excluded under the lease. The lease contained a clause giving him ‘the benefit of all existing and future wayleaves, easements and rights…’. Therefore, he had the benefit of the right over the common land.
The commoners argued that the tenant had agreed with a committee representing the commoners of the village to waive the right to common pasture.
In the view of the Court of Appeal, the grazing right could have been severed from the other rights attaching to the rented land and reserved for the owners of the land. It was not.
In any event, the Court concluded that the committee of commoners was a non-statutory body and there was no evidence that it had the legal power to bind the commoners. It could not therefore substantiate a claim to make a binding agreement on their behalf.
The tenant therefore had the right of common pasture.
This case shows the importance of making sure that potential issues are thought through and documents drafted carefully in order to deal with circumstances such as this where they might arise. <<CONTACT DETAILS>> can advise you on any agricultural or other property matter.
Partner Note
Hall v Moore, Harris and Harris [2009] EWCA Civ 201.
Termination of Leases – Tips for Tenants
Break clauses in commercial leases have probably received more attention from tenants in the last year or so than at any time since the early 1990s. For tenants seeking to break their leases, here are some pointers:
  • Make sure any notice to break the lease is issued by the right person. This may strike you as obvious, but if, for example, your lease is held by your company, the notice will not be valid unless it is issued specifically on behalf of the company. There can be particular issues when the lease has been assigned;
  • Issue the notice at the correct time. This will be set out in the lease, but the language of the lease may not make it obvious. A notice period date which runs ‘from’ a stated day excludes that day, whereas one that commences ‘on’ a stated day includes that day;
  • Give the notice in the correct form. Usually, a notice must be given in writing and must be delivered in a particular form. For example, if the lease specifies that it must be delivered by post, a fax will not suffice;
  • Give the notice to the correct person. A notice delivered to the wrong person will not be valid;
  • Ensure you have not breached your lease terms. Most leases require that a notice to break the lease can only be given if the tenant has not breached its terms. Make sure that your rent is paid and all other covenants are complied with, otherwise the notice may not be valid; and
  • Make sure you have evidence of the state of the premises so that, if a dispute arises over the sum payable for dilapidations, you have the information necessary to support your position. It is normally advisable to agree the position as far as possible with the landlord. Remember that it may be cheaper to get some of the work that is necessary done yourself, rather than by the landlord, where possible.
Says <<CONTACT DETAILS>>, “Breaking a lease can be a tricky business and needs to be approached with care. A landlord who receives a notice believed to be invalid may just ignore it, in the hope that the final date for giving notice will pass before the error is uncovered, leaving the tenant unable to exercise the break option.”
Partner Note
There is a good article on this topic in the Solicitors Journal, 19 May 2009.
What You Can’t Access You Can’t Repair
Sometimes, the courts are called upon to decide matters which are so obvious that the mind boggles as to how a case was brought in the first place.
A recent case involving a local council is just such a puzzle. The council was concerned that the dilapidated state of part of a building was impairing the visual amenity of the area. It therefore served a notice on the occupants requiring them to take remedial steps to repair the elevations of the upper floors of the building. The notice was served by the council on the ground floor and basement tenants (the ground floor and basement not being in disrepair) as well as the tenants of the upper floors (which were dilapidated) and the freeholder.
The council accepted that the ground floor and basement tenants had no control over the condition of the upper floors but refused to withdraw the enforcement notices issued against them, so the matter ended up in court.
The court ruled that when serving such a notice, the land in respect of which the owner and occupier might be served with a notice must be the same as the land in relation to which remedial works were needed and that the notice could only relate to the part of the property which was having an adverse impact on the amenity of the area. The ground floor and first floor tenants did not occupy the relevant part of the property and the notices served on them were therefore quashed.
Says <<CONTACT DETAILS>>, “In this case, the tenants could not have rectified the dilapidations even if they had wanted to, as the upper floors of the building were not within their control. Fortunately for them, the court saw sense.”
Partner Note
Toni & Guy (South) Ltd. v Hammersmith & Fulham London Borough Council [2009] EWHC 203 (Admin). See

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