Commercial Property Titles ~ Autumn 2007


A Tenant’s Right to Buy
Since the 1980 Housing Act (modified by the 1985 Housing Act), secure tenants of certain public sector landlords have had the right to purchase their home from their landlord at a discounted price. This option has been used by over 1.6m people to buy the properties in which they live.
The main public bodies affected by this legislation are Local Authorities. New Town Corporations, Housing Action Trusts, Urban Development Corporations and Housing Co-operatives may also be affected to a lesser extent. Housing Associations were included until 1988 but were then privatised. They cannot grant new secure tenancies, although those with tenancies created before 1988 still have the right to buy their property. Since then, Housing Association tenants have been granted assured tenancies instead, which do not confer the right to buy. If a number of properties are transferred simultaneously from a Local Authority to a Housing Association, then the right to buy is preserved for secure tenants who continue to occupy their property.
Any secure tenancy created after 18 January 2005 must last five years to establish the right to buy. To qualify, a single or joint tenancy must have exclusive possession of the property. A shared bathroom may be allowed, but a shared kitchen would not be.
Certain tenants do not have the right to buy. Those who occupy a dwelling in connection with their employment do not qualify, nor do those with long leases. Properties designed for physically disabled people or which are suitable for the elderly are also excluded.
The maximum discount on the purchase price varies regionally, but can be as much as £38,000. The potential discount increases with the time the tenant has been a secure tenant. There is no requirement to pay the discount back providing the tenant does not sell the property within three years of purchasing it.
To apply, a secure tenant must complete a RTB1 form. Once a request to buy has been received, the landlord then has four weeks to admit or deny the application. If the landlord refuses, they must give an explanation. If the landlord admits the request, they must complete a notice within eight weeks containing the valuation, possible discount and any likely improvements needed in the future. The tenant then has twelve weeks to confirm that they wish to continue. If they do not, two completion notices may be served by the landlord fifty-six days apart. The landlord may then withdraw the offer where there is still no response from the tenant.
There are several grounds which can nullify the right of a secure tenant to buy their property. Examples of possible grounds are rent arrears, nuisance and domestic violence. If a secure tenant receives an Anti-Social Behaviour Order, the landlord can seek a Demotion Order, which transforms a secure tenancy to a demoted tenancy, removing the right to buy, and lasts for twelve months.
After this, it can become a secure tenancy again if the landlord is satisfied with the tenant’s conduct.
For advice on how the right to buy provisions affect you, please contact <<CONTACT DETAILS>>.
Business Adds Value to Land Before Commencement
There is often a difference between the market value of land and the value placed on that land by its owner. The market value of land is the value that would be paid by a willing buyer to a willing seller. This is not necessarily the value which would be placed on land by the owner when, for example, it is subject to a compulsory purchase order.
When the market value and the value to the owner differ because of the value attaching to the land on account of its current use, this is termed ‘special value’. The normal circumstance in which special value is claimed is when there is a business on the land which has a significant relationship with it – typically where the owner has made an investment in the land on which the business is carried out.
Recently, the court addressed the question of whether compensation should be payable for the special value of land to be used for a business, if the business was to be carried on with a view to profit but had not yet commenced to trade on the land. In the case in point, the owner of the land had made infrastructure investments in it and had commenced work in connection with the proposed business, but the business itself had not commenced trading.
In the view of the court, once the investment in the land in pursuit of the business had been made, the fact that the business had not yet started to use the land did not prevent it from having a value over and above the normal market value.
Partner Note
Welford v EDF Energy Networks (LPN) Ltd. [2007] EWCA Civ 293.
Conduct and Intentional Homelessness 
Local authorities deal with many cases of intentional homelessness each year. A recent case provides useful guidance on the approach of the courts when a claim of intentional homelessness is founded on everyday behaviour rather than a specific action of the homeless person.
It involved a young man with significant behaviour problems who lived with his disabled mother. When she found she could no longer control him, she ordered him to move out. He then moved in with his sister, but after ten months she also decided she could not cope with him.
The man asked Southwark London Borough Council to house him. The Council took the view that since his homelessness arose because of his bad behaviour, it was intentional homelessness. His mother would have continued to provide housing for him if his behaviour had not been unacceptable. That it continued to be so was his choice and therefore his homelessness was intentional.
The man appealed against the Council’s decision and, on appeal, the court ordered Southwark to accommodate him, judging that the Council had undertaken no detailed enquiry concerning his relationship with his mother and, in particular, had not ascertained whether this might already have broken down. Southwark appealed to the Court of Appeal.
In the view of the Court of Appeal, all circumstances had to be taken into account when determining whether a person had made himself intentionally homeless. In this case, the man had been required to leave his family home because of his bad behaviour. The difference between expected behaviour in a family context as opposed to when one is a tenant was significant as when one lives with other people, it is essential that they are shown proper respect. Secondly, the mother’s requests regarding the standard of behaviour she expected of her son were not unreasonable and she was willing to have him back if he behaved reasonably.
Once an application for housing had been made, the authority was required to make proper enquiries, but its failure to make further enquiries could not be challenged as a matter of public policy unless that failure was irrational or perverse. In this case, it was neither. Accordingly the Council’s decision that the homelessness was intentional was upheld.
The result in this case will be welcomed by housing providers as it confirms that, in such circumstances, provided a decision is reached on reasonable grounds, it will gain the support of the court.
Partner Note
Denton v Southwark London Borough Council [2007] EWCA Civ 623.
CVAs – Good News for Landlords
Landlords who let premises to the subsidiaries of holding companies have been given some cheer by a recent decision of the High Court. The case arose when electrical retailer Powerhouse decided to close down half of its branches. The landlords of the branches had been given guarantees for the payment of their rents by the parent company, PRG Group Ltd.
A Corporate Voluntary Arrangement (CVA) was proposed for Powerhouse. This prevented the landlords of the branches from claiming rents due to them from either Powerhouse or PRG Group, but provided that other creditors would be paid in full from the trading income of Powerhouse.
When the CVA was put to the creditors, it achieved the necessary 75 per cent majority of the votes, because the claims of the landlords were swamped by those of the other creditors, who stood to be paid in full. The landlords affected by the ruling went to court, challenging the validity of the vote and arguing that it was an attempt by PRG to avoid its obligations under the guarantees.
The High Court agreed that the proposed CVA was unfairly prejudicial to the landlords and ruled that it was invalid. The Court ordered the CVA supervisors to pay most of the legal costs of the landlords and denied the CVA supervisors the right to appeal.
This case has significance for landlords who obtain guarantees from other group companies for the rental obligations of tenants. It shows that the courts will take a tough attitude to CVAs which appear to be (in effect) a way for the guarantor to avoid liability under its guarantee.
Partner Note
Prudential Assurance Co Ltd. v PRG Powerhouse Ltd. [2007] EWHC 1002 (Ch).
Damage Limitation not Unfair
A High Court ruling means that a building subcontractor is not liable to pay compensation, for defective works, which could have totalled more than £10 million. The Court ruled that the subcontractor was able to rely on a contract term that limited compensation to the contracted price.
Property developer Shepherd Homes Ltd. engaged a civil engineering contractor, Encia Remediation Ltd., to undertake various site works, including roads, ground works, paths and sewers, and to pile the site and create ring beams and floors. Encia, in turn, engaged a specialist subcontractor, Green Piling Ltd., to carry out the piling work.
Green Piling carried out the works between July 2001 and September 2002. By May 2003, properties at the site began to show signs of cracking due to settlement. Shepherd Homes then sought compensation from Encia, which later joined Green Piling as a third party.
Green Piling’s standard terms and conditions state that, ‘Our maximum total liability is limited to the contract price; whether in contract or in tort, for any damage or loss whatsoever, including all direct, indirect or consequential loss’. This, Encia claimed, was unfair in that insufficient notice of the limitation clause was given. Reference was also made to Green Piling’s professional indemnity insurance cover of £1m, compared with the contract price – reported to be between £100,000 and £250,000.
Encia submitted that the cap on compensation was unfair and unreasonable given that it believed Green Piling to have the benefit of up to £1m of insurance cover and Green Piling had not specifically drawn Encia’s attention to the limitation clause. This submission was considered in the context of the Unfair Contract Terms Act, which places restrictions on contract terms that are unfair or unreasonable.
The High Court held that Green Piling’s limitation clause was fair and reasonable under the circumstances and that Encia did have sufficient notice of the term. The Court found that the £1m insurance cover was not relevant to the cap on compensation.
“This case provides a timely reminder that small print should always be read,” says <<CONTACT DETAILS>>. “A thorough reading of the full terms and conditions of a proposed agreement is essential to avoid unforeseen costs later on.”
Partner Note
Shepherd Homes Ltd. v Encia Remediation Ltd. and Green Piling Ltd.
[2007] EWHC 70 (TCC), Case No: 5T 00595, 26 January.
Discrimination by Landlord in Subletting Case
A recent decision of the Court of Appeal serves as a warning to landlords that obtaining a possession order and serving a notice to quit on a tenant with a disability could be a breach of the Disability Discrimination Act 1995 (DDA) in certain circumstances.
The DDA makes it unlawful to discriminate against a disabled person who occupies premises by evicting them or subjecting them to a detriment. In the case in point the tenant had sublet part of the property, contrary to the lease terms. The tenant was deemed to be disabled because he suffered from schizophrenia.
In the lower court, the judge had ruled that the tenant was not a disabled person under the Act, that his actions were not the result of his disability and that the relevant section of the Act did not apply because he had lost his security of tenure.
The Court of Appeal considered that the tenant’s disability did have a substantial impact on his ability to carry out his day-to-day activities and he was therefore a disabled person under the Act. In its view, there was no need to find that a schizophrenic episode actually caused the subletting. The question then was whether the relevant section of the Act would apply to protect a tenant who has lost his security of tenure. The Court held that it would and that the tenant could rely on a defence of disability discrimination in contesting the landlord’s application for possession.
Partner Note
Lewisham London Borough Council v Malcolm [2007] EWCA Civ 763.
Court of Appeal – reported in the Times, 28 August 2007.
In Brief
Preservation Need Not Enhance
The High Court has ruled that planning permission for a property extension in a conservation area which, according to the local inspector’s report, would ‘preserve’ but not ‘enhance’ the area could not be overturned.
The Local Structure Plan stipulated that new development in the area should ‘preserve and enhance’ it and the granting of planning permission was contested on the grounds that the proposed extension did not do both things. In the Court’s view, if the Listed Buildings Act 1990 had intended to provide a basis for stopping developments which do not enhance conservation areas, it would have stated so in clear terms. Accordingly, the proposed extension was allowed.
Partner Note
Chandler v Secretary of State for Communities and Local Government.
[2007] EWHC (Admin) 1000.
In Brief
Rent Reviews – When Time is of the Essence
A landlord who failed to observe a time limit in a lease agreement with a tenant was left to count the cost recently. The lease contained a provision which stipulated that in the event of a failure to request an independent surveyor’s report by a set time the rent would remain frozen for seven years (i.e. until the next rent review). The landlord neglected to commission the report and because the lease was specific as to the consequences of that failure, the court accepted that the rent could not be increased. The moral in this case is that putting dates in your diary is important, but getting your drafting right in the first place is just as important.
Partner Note
Secretary of State for Communication and Local Government v Standard Securities Ltd. [2007] All ER D 316 (June).
In Brief
Energy Performance Certificates
Under the Energy Performance of Buildings Directive an Energy Performance Certificate will be required whenever a residential or commercial building is constructed, sold or rented.
Builders and commercial property owners are reminded of the following dates when Energy Performance Certificates (EPCs) must be supplied.
6 April 2008 – EPCs required for all commercial buildings exceeding 500 square metres, whether for sale or let, and all newly-built commercial buildings.
1 October 2008 – EPCs required on the sale or rent of all dwellings and commercial buildings.
Partner Note
RICS have a summary of the requirements at
In Brief
Safety Advice for Landlords
The Health and Safety Executive has put together a web page offering safety advice for landlords who let out domestic properties with gas appliances. It features a Frequently Asked Questions section dealing with the main issues applying to gas safety in let properties.
The advice can be found at
Infrastructure Project Delays – Government Takes Action
The high-speed rail link between Paris and London was completed on the French side several years ago, but the line in England is still not high-speed throughout its route. This and similar delays in major infrastructure projects (such as those which have dogged Heathrow’s Terminal 5), which are due to the lengthy periods of review and consultation which characterise the planning system here, have led the Government to propose a new planning system designed to speed up the planning process relating to major projects.
It is proposed that responsibility for infrastructure development decisions should be devolved to an ‘Infrastructure Planning Commission’, which will assume many of the powers relating to planning decisions which are currently the responsibility of the local council and Secretary of State. Ominously for some, this proposal comes shortly after the Government indicated that it was once again considering the expansion of the civilian nuclear energy programme.
If the White Paper becomes a Bill, it will constitute what many perceive as a significant attack on local decision-making, making a stormy passage through Parliament inevitable.
For advice on any planning matter, please contact <<CONTACT DETAILS>>.
Partner Note
The White Paper, Planning for a Sustainable Future, can be found at
Ownership Must Have a Point
When a property boundary is wrongly registered, an application may be made to the Land Registry for the plan showing the registered title to be altered. An alteration will normally be allowed when there is proof of a mistake.
Recently, however, Derbyshire County Council applied to have the register amended after it discovered that a family had built a garage on land which was incorrectly shown as part of their property on the plans filed as part of their registered title. Had the Council’s application been successful, part of the garage would then have been situated on the Council’s property.
The Council argued that any action which might be taken regarding the garage was not relevant (and indeed it had taken no action regarding it), but that the registered title should be altered to show the correct boundary line. Its argument was that the register should be an accurate record of the ownership of the land regardless of who was in possession of it.
The adjudicator refused to alter the register and the Council appealed against the decision. The judge refused to allow the Council’s appeal. The alteration of the boundary would, in practice, achieve nothing, because if the Council were to take legal action to recover the land, it was probable that it would fail. There would be no point in altering the register whilst leaving the issue over the garage unresolved.
The registrar’s powers are very limited compared with those of the court, which is able to consider the entirety of the issues involved. In this case, it took account of the practical implications of altering the register.
Partner Note
Derbyshire County Council v Fallon [2007] EWHC 1326.
See Solicitors Journal, 10 August 2007, pp 1052-3.
Reasonable Repair an Objective Consideration
What constitutes being ‘in good and substantial repair and condition’ has regularly provided room for debate and this can be especially important when the state of repair of a roof is in point.
A tenant which had covenanted to yield up its industrial unit in good and substantial repair at the end of the lease found itself facing a hefty bill when the incoming tenant insisted that the roof – which had been repaired by patching – should be completely replaced. The landlord subsequently sought to recover the cost of the replacement roof from the previous tenant, under the repairing covenant.
The tenant fought the claim, arguing that the landlord’s claim must be restricted to the cheapest sensible option for the repair – clearly not the cost of a new roof.
The court agreed. The demands of the incoming tenant were not relevant to the issue. The standard of repair is an objective standard and patch repairs were sufficient to comply with the covenant. The previous tenant’s liability was therefore limited to that cost.
However, the previous tenant also sought to avoid liability for the cost of replacing lighting in the building, which was necessary in any event. The tenant argued that the replacement of the roof by the landlord was a structural alteration and it was therefore excluded from liability by operation of law. The court could not accept that argument. The replacement of the roof did not constitute a structural alteration. The previous tenant had to pay for the lighting.
Partner Note
Carmel Southen Ltd. v Henshaw Ltd. [2007] EWHC 1289 (TCC). Ref s18 (1) Landlord and Tenant Act 1927.
See also Riverside Property Investments v Blackhawk Automotive [2005] 1 EGLR 114.
Right to Buy and Broken Tenancies
The right of secure tenants to buy their properties in appropriate circumstances is well known, but less obvious is what occurs when a tenancy which would give the tenant the right to buy is broken and then reinstated.
In a recent case, a council tenant who had been in possession of her flat since 1990 applied, under the ‘right to buy’ provisions, to purchase it in 2000. However, she did not pursue the purchase at that time. She then fell into arrears with her rent and in 2002 the local authority obtained a possession order. This was suspended on the condition that the arrears of rent were paid to the council. When this did not occur, the council wrote to her, in early 2003, advising her that as a result of her failure to pay the arrears, she had forfeited her secure tenancy. She was then, in legal parlance, a ‘tolerated trespasser’.
The tenant subsequently managed to pay off her arrears, which led to the possession order being set aside. However, her rent again fell into arrears and in 2005 the council applied for another possession order. She counterclaimed and requested the court to order the local authority to sell her the leasehold. The judge granted her request once the arrears had been cleared. The local authority appealed.
The question which was raised was whether the ending of the tenant’s secure tenancy, through the granting of a possession order, brought to an end her right to buy even after her tenancy had been revived once the possession order had been set aside?
The local authority took the view that the relevant legislation meant that the right to buy could not be invoked once the tenancy had lapsed. The tenant claimed that the restoration of the tenancy meant that she had remained a secure tenant throughout and thus still retained the right to buy the flat.
The court agreed with the local authority. Once the tenancy had to be given up (on the granting of the possession order), the right to buy terminated.
Partner Note
Islington London Borough Council v Honeygan-Green [2007] EWHC 1270.
See New Law Journal, 1 June 2007 p 779.
Successor Not Bound by Collateral Agreement
Yet another case has proven the point that it is unsafe to rely on correspondence outside the contract.
It involved a dispute between a tenant and a landlord. The tenant wished to surrender its lease and to rent a smaller part of the same premises. The tenant and landlord agreed in correspondence between their respective solicitors that as part of the deal the landlord would not serve the usual schedule of dilapidations on the tenant at the end of the new lease. However, that agreement was not included in the lease documentation itself. Later, the landlord disposed of the premises.
When the new lease came to an end, the new landlord served a schedule of dilapidations. The tenant contested this, arguing that there was a collateral contract in place which prevented the service of the schedule.
The Court of Appeal found that the original agreement had been overtaken by subsequent negotiations between the tenant and the original landlord and that had the right to reclaim the cost of tenant’s dilapidations been excluded, the new lease would have been uncommercial.
The lesson for tenants is to make sure that any arrangements on which they seek to rely are dealt with in the lease. For anyone buying a let property, the case will give some assurance against nasty surprises stemming from undisclosed collateral contracts. The lease documentation is almost always the right place to insert any clause which is intended to bind successors to the contract.
Partner Note
Business Environment Bow Lane Ltd. v Deanwater Estates Ltd. [2007] EWCA Civ 622.
Tenants’ Change of Heart Proves Costly
Tenants who tell their landlord that they want to renew their lease but subsequently change their minds could become liable for the landlord’s court costs, following a recent Court of Appeal decision.
The case involved landlords, who issued a notice to their tenants requiring them to state whether a renewal of their lease would be sought. The idea behind this procedure is that it gives landlords time to make alternative arrangements, if the tenant wishes to vacate, and means that their negotiating position cannot be undermined by a tenant who delays in replying until the lease is near to expiry. In this case, the tenants filed an acknowledgement of the notice, indicating that they did intend to take a new lease. The terms proposed in their response were such that they had, in effect, commenced their own proceedings with the intention of obtaining a new lease on better terms then the old one.
The tenant later served a notice indicating that they would not be renewing their lease.
In the view of the Court of Appeal, the actions of the tenant were in effect the same as filing a notice to discontinue their claim for a new lease. In such cases, the tenant is liable to meet the landlord’s costs.
Partner Note
Lay and Others v Drexler and Others – Court of Appeal. [2007] EWCA Civ 464.
Times Law Report, June 20, 2007.
Unfair Exclusion Clause Struck Out
The use of exclusion clauses to limit liability in case a contract goes wrong is common in many kinds of contract – especially where the ‘downstream’ effects may be large relative to the value of the contract. Typically, such a clause will limit the damages payable to a particular sum or will exclude certain types of consequential loss. If such a clause is reasonable and lawful, the court will normally uphold it. However, if the clause is not reasonable, it is unenforceable and may be attacked using the Unfair Contract Terms Act 1977 (UCTA).
Recently, the UCTA was used with success by an IT company that wished to claim damages for loss of profits from the provider of serviced offices from which it rented its premises. The offices had defective air-conditioning and became stiflingly hot. This prevented the IT company from holding training courses, which in turn caused it to suffer financial loss. It sued.
The serviced office provider had a ‘catch-all’ term in its contract which attempted to exclude any liability whatsoever for losses suffered by its tenants – even those which amounted, in essence, to a failure to provide habitable offices.
The court considered the exclusion clause to be unreasonable under the UCTA and allowed the tenant’s claim.
“The law is constantly changing,” says <<CONTACT DETAILS>>, “and it is worth undertaking periodic reviews of any standard legal documents you use, to ensure that they still comply.”
Partner Note
Regus (UK) Ltd. v Epcot Solutions [2007] EWHC 938.
VAT and Buildings – Watch Out for the 10 Year Trap
VAT on property is a notoriously difficult minefield to negotiate and one of the biggest dangers relates to the VAT status of buildings.
Dealings in freehold land and buildings are normally exempt transactions for VAT – no VAT is charged on the sale by the vendor and none is recovered by the purchaser. However, property can be ‘opted to tax’ by a vendor, in which case the sale of the property is subject to VAT, which may be recovered by a VAT-registered purchaser.
The effect of not exercising the option to tax (the option to tax is strictly a waiver of the exemption from tax) is, in simple terms, that if the property is conveyed within ten years as an exempt supply, subject to a ‘de minimus’ limit, input VAT recovered on the original purchase of the property or on improvements and additions to the property will be repayable in part. This ten year period is called the ‘adjustment period’. So, for example, if a property is purchased which is subject to VAT, but the purchaser has not opted to tax the building, and the building is then sold after five years, half of the VAT recovered on expenditure on the building during the period of ownership will be repayable. Opting to tax the property before the sale would solve that problem for the vendor, but would increase the cost for the purchaser were it not able to recover input VAT. After ten years, the adjustment period is past and no VAT would be recoverable on the sale.
The message for owners of commercial properties is to make sure they understand the VAT status of their properties and the potential impact of a sale – an unexpected bill for input tax recovered several years prior can be quite a jolt.
There may be a good reason why a property is not opted to tax. For example, if the buyer is in a business which is not eligible to register for VAT because its supplies are not VATable (e.g. a financial services business), the VAT on the selling price would constitute an extra cost.
Contact us for advice on all commercial property matters.
VAT on Buildings – Abusive Scheme Fails
The inability of educational institutions to recover VAT is sometimes particularly unfortunate bearing in mind the levels of investment they often need to make in buildings. The attraction of saving 17.5 per cent of the total cost of such projects has led to a lot of head-scratching by professional advisors and to a variety of avoidance schemes. These in turn have led to extensive anti-avoidance legislation.
Recently, a case came up in which such a scheme was attacked by HM Revenue and Customs (HMRC), not because it fell foul of the anti-avoidance legislation (which, being very carefully crafted, it did not), but because it was generally abusive. The scheme involved a building being let by one charity to another (a school) for a consideration well below the market rate.
The VAT Tribunal considered the scheme and in so doing examined a quantity of correspondence passing between the school involved and its professional advisors, in an attempt to understand the intentions of the parties involved.
HMRC argued against the scheme on the basis that undertaking to rent the premises for a sum far less than the market value was not a business activity at all, and therefore the VAT would be non-recoverable. This argument was accepted by the Tribunal. Interestingly, HMRC have based arguments on exactly the opposite point of view when it has suited them!
“Not that long ago, VAT was a strictly assessed tax, with decisions being based on the letter of the law and not on subjective intention. Increasingly, the Tribunal is looking at the substance beneath the transactions,” says <<CONTACT DETAILS>>.
VAT planning is important in many areas of property development. Contact us for advice on this complex area.
Partner Note
Re Benenden School Trust and Lime Avenue Sales & Services Ltd. v Commissioners for HMRC, London VAT Tribunal 27-30 March 2007 no 20140. See
See also Accountancy, July 2007, p 97 for a summary.

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