Commercial Property Titles December 2006


Acceptance of Payment Causes Loss of Rights
A recent case involving a tenant that became insolvent should sound a warning bell for landlords. In this instance the tenant, which was a company, entered into a company voluntary arrangement (CVA) and the landlord accepted payments of rent after the due dates.
The relevant lease contained a clause which allowed the landlord to repossess the property if the tenant became insolvent or fell into arrears of rent. The landlord, therefore, applied for forfeiture of the lease. He failed in the Court of Appeal, which ruled that because the landlord had accepted the late payments of rent, he had waived his right to forfeiture of the lease and that the tenant’s debts for arrears of rent were compromised under the CVA.
The case raises two further interesting points. The tenant specified which rent periods the payments related to. By accepting the payments, the Court considered that the landlord had accepted the tenant’s allocation of them.
Also, if forfeiture is sought, the tenant can apply to obtain reinstatement of the lease and to do so needs only settle the arrears which were the basis of the forfeiture.
“If your tenant falls into arrears of rent and/or service charges, take advice before you take action or even accept a late payment from the tenant,” says <<CONTACT DETAILS>>. “Hasty actions can have expensive unforeseen consequences.”
Assessment of Damages Based on Rental Value
The Court of Appeal recently heard a case in which the question at issue was the correct basis for calculating the damages payable by a landlord to the tenant of a flat for the landlord’s breach of the repairing covenant under the lease. The tenant occupied the flat as his home under a 99-year lease, paying only ground rent.
In this instance, the landlord had failed to keep the roof of the property in good repair, which resulted in water coming into the flat in substantial quantities. The tenant put up with this for nearly three years but was eventually compelled to vacate the flat for a period of 21 months.
The tenant sued the landlord. The judge awarded the tenant £20,000 by way of damages for his period of occupation and £10,000 for the period when he was forced to move out. The landlord appealed, arguing that the damages suffered were only in the region of £3,300 and that it was unfair for damages to be on a ‘loss of rental value’ basis assessed on the deemed market rent when the tenant was paying only a ground rent.
The Court of Appeal concluded that whilst there was no general ‘tariff’ which applied in such cases, the resulting assessment of damages payable to the tenant by the landlord should be made with reference to the reduction in the open-market rental value of the flat and the impact on that of the unrectified roof problem. The fact that the tenant was paying only ground rent was not in point.
The message for landlords is that failing to comply with repairing covenants in leases with tenants can cost more than just the cost of repair, even where the tenant is on a long-term lease paying only a ground rent.
Basic Issues Ignored Can Produce Unnecessary Expense
Failure to consider basic issues of rights of way when trust deeds and the like are drawn up can lead to expensive and unnecessary court actions, as was illustrated by a recent case involving two beneficiaries of an estate.
The case involved a £6.5m estate comprising agricultural land, farm buildings and cottages. The two beneficiaries were tenants of separate properties. The estate had been divided a decade before but a dispute arose over one of the small farms – a tenanted farm which included farm buildings and two fields. The problem did not manifest itself until the tenancy of the farm came to an end and the issue then arose as to how one of the beneficiaries could access the two fields. The beneficiary claimed to have right of access to the two fields from the public road by crossing the other beneficiary’s land. The tenant had previously accessed the fields directly from the farm buildings, not from the road.
The trustees of the estate went to court to determine whether the beneficiary of the estate was entitled to a conveyance which included a right of way for vehicles over the land owned by the other beneficiary. The land concerned was only worth £290,000 and the potential impact on the value of each parcel of land (one worth only £20,000 and the other £270,000) was minor in the extreme.
The court declined to make a ruling which would have allowed one beneficiary to have a legal right of way for vehicles over the other beneficiary’s land under the settlement. In addition, the court said that there was no implied right of way under statute, partly on the basis that it had not been shown that the farm’s erstwhile tenant had benefited from an implied right to drive along the route in question – he simply went directly from the farm buildings to the fields.
The judge, Mr Justice Donaldson, said that although there may initially have been an easement of necessity before the land was ‘divided’ between the beneficiaries, this was effectively cancelled by the subsequent surrender of part of the land. The trustees were under no obligation to grant a conveyance containing the right of way sought.
The judge also commented on the futility of the litigation, saying that it was ‘close to pointless from its inception: it must surely be time for it to cease’.
When dealing with the division of land in similar circumstances, it is important to consider all the implications of the proposed arrangements.
Careful Drafting Pays Dividends
A landlord who failed to include an appropriate clause for subletting to a social tenant in his lease with a local authority recently had cause to regret the way in which the lease had been drafted. The case involved a flat which was intended to be let for temporary housing and which was eventually let to a sub-tenant of the local authority for several years. The lease, given to Haringey District Council, omitted a clause which prevented the tenant from acquiring full security of tenure. In order to prevent a tenant from acquiring security of tenure, the head lease must contain a provision entitling the lessor to take possession of the premises on the expiry of a stated period, or when required by the lessor, so as to comply with the Housing Act 1985.
When the sub-tenant fell into arrears, the Council sought repossession of the property. During the course of those proceedings, it was decided that she had acquired a secure tenancy because the clause in the Housing Act dealing with such leases specifies that a lease does not create a secure tenancy when ‘the terms on which it has been leased include provision for the lessor to obtain vacant possession … on the expiry of a specified period or when required by the lessor’. The Court of Appeal decided this had to be construed strictly, meaning that the head lease must contain a break clause loosely enough worded to allow the landlord to obtain vacant possession either on the expiry of the lease or when required by him. In this case, the lessor could only require that the property was vacated at the end of the lease and the tenancy therefore qualified as a secure tenancy.
The landlord was therefore left with a secure tenant – a most unfortunate result as the property was only intended to be used for temporary housing.
Says <<CONTACT DETAILS>>, “This case raises serious issues for landlords wishing to let properties to social housing providers. Contact us for advice.”
Commons Act – Bad News for Landowners
The Commons Act 2006 has changed the planning regime regarding common land somewhat and the changes that have been introduced will not generally be pleasing to the owners of common land.
Common land is protected from development which interferes with the rights of common, which can prevent the owners of such land from undertaking developments which the planning authority regards as adversely affecting the interests of a variety of classes of persons, including residents of the neighbourhood generally.
In particular, works which prevent or impede access to common land may not be carried out without consent and land which is designated as a ‘green’ can now only be developed for the better enjoyment of the green itself, unless an exchange of land is agreed whereby the land being developed is replaced by other land.
The problem that this poses for owners of land used as a green is that for land to be designated as such, all that is necessary is for it to have been used as of right by a significant number of local inhabitants for 20 years. ‘Use as of right’ here means that the land could be and was used without the permission of the landowner and that the landowner did not take steps to prevent its use. Until the current Act, a landowner could fence off land before an application was made for it to be registered as a green and this could suffice to prevent its registration. Now, an application can be made at any time up to two years after the land ceased to be used as a green. Landowners wishing to develop land on which a claim for registration might be made should be aware that there are transitional provisions which can lengthen the time needed before it is ‘safe’ to commence development of land which has been used as a green.
If you are the owner of land which could be the subject of a registration claim, take advice on what steps you should take to protect your interests before you take any action.
Court Gives Guidance on What Constitutes a Change in Layout
The courts have recently given additional clarification on just how far a lessee can go in altering the layout of a property without either the landlord’s consent or breaching other terms of the lease. The case of Waycourt Ltd. v Viscount Chelsea looked at the issue of what constitutes a ‘change of layout’ for the purposes of a prohibition on changing the plan or internal layout of premises under a lease.
The property in point consisted of two substantial terraced houses, in Sloane Gardens, which had been divided into flats with a basement area comprising a caretaker’s flat and two subterranean storage vaults. The basement flat consisted of a kitchen-diner, a bedroom and a bathroom. The flat was too small for the caretaker and her family and so her husband altered the premises, converting the two vaults into a kitchen and dining area.
There was a complaint by the landlord that the caretaker had altered the layout of the basement by the conversion works and that this was in breach of the lease. The caretaker claimed that the landlord’s consent had been unreasonably withheld and that she had not herself been in breach of the covenant ‘not to alter the plan layout height or elevation of the demised premises’. 
The Court of Appeal agreed with the judgment of the lower court, which ruled that the change in the internal arrangement of the premises did constitute a change in layout and that the caretaker was in breach of the covenant in her lease.
Tenants who are considering making internal alterations to their premises, such as removing walls or making new door openings, should take this decision as a warning to ensure that they are within their legal rights before undertaking building works.
Direct Action Disproportionate if Chances of Planning Success Ignored
A local authority which took direct action to remove gypsy caravans from green belt land was found, after judicial review, to have used ‘disproportionate’ means to secure compliance with an enforcement notice.
The case involved Basildon District Council and various gypsy families, who had failed to comply with enforcement notices to remove their caravans from a site owned by the Council. The gypsies had applied for planning permissions to station caravans on the ground, but these were refused. They were in the process of appealing against the decisions not to grant planning permission when the Council took its steps to remove their caravans.
The gypsy families included several children, some of whom suffered from health problems and some of whom attended local schools.
The Council reviewed its decision to take direct action using its internal review procedure and concluded that the decision was correctly taken. The gypsies applied for judicial review on the grounds that the internal review did not take into account their prospects of success in obtaining planning permission on appeal and that the action taken amounted to a residential eviction.
The judge ruled that the Council had failed adequately to consider the likelihood of the success of the planning applications and had failed to consider the most recent report on the site made by its planning inspector. As both of these were material considerations, the use of direct action to remove the caravans was not proportionate.
Says <<CONTACT DETAILS>>, “This case shows that in planning matters it is important to consider the whole picture, not just how it looks from your own perspective.”
Ignoring the Obvious is Intentional
The Court of Appeal has confirmed that a woman who left her rented flat to move into a larger and more expensive one, without having considered whether she could afford it, had made herself intentionally homeless when she had to vacate the new flat because she could not pay the rent.
The 18-year-old woman and her child occupied a council flat. She received housing benefit, which was sufficient to cover the rent on the flat. However, despite warnings that she would not be able to afford it, she decided to move to a larger and more expensive property owned by a private landlord. She was unable to afford the rent on the new property and fell into arrears, with the result that a possession order for non-payment was made against her.
The woman went back to the local council to obtain accommodation. It ruled that she had made herself intentionally homeless, so she did not qualify for council housing. She went to court to contest the council's decision, arguing that she had thought that her housing benefit would cover the full rent on the new property.
In the view of the court, she had simply failed to consider whether she would be able to afford the new property or not. Shutting her eyes to the obvious did not constitute good faith towards the council and the finding of intentional homelessness was upheld.
Says <<CONTACT DETAILS>>, “This is a common-sense decision and it is somewhat surprising that it was argued as far as the Court of Appeal. It reaffirms that the courts do not place a high regard on wilful ignorance in such cases.”
Landlords Must Act Fairly and in Reasonable Time
A recent case involving the recovery of service charges has seen the court criticise the way that landlords and their agents often deal with service charges.
The case involved a property in Piccadilly, London, which is tenanted. The basement-level tenant is a casino (Distinctive Clubs Ltd.) and it entered into its lease in 1998. The building was known to have structural problems with its roof, which needed substantial repair, and the lease signed by Distinctive Clubs contained a clause which limited its liability for repair works during the first five years of its lease. The estimated cost of repair in 2002 was £200,000.
In 2004 (after the limitation clause had expired), the landlord carried out roof repairs, which included building a new structure which benefited only the tenant occupying the top floor. The total bill amounted to over £2m and Distinctive Clubs’ contribution to the repairs was assessed at £700,000. In court there were two main questions to address.
Firstly, was the basement tenant liable to pay for the works that benefited only the top floor tenant and which, in any event, were improvements to the property, rather than repairs?
Secondly, was the delay in carrying out the repairs reasonable?
In the view of the court, the repairs to the roof were justifiable repairs under the lease. However, the improvements which benefited only the rooftop tenant were not, so Distinctive Clubs would not be liable to contribute to those. However, in the view of the court, the landlord could, had it shown reasonable alacrity, have completed the repairs by 2003. Accordingly, Distinctive Clubs was not liable to contribute to any of the cost of the repairs.
The judge criticised the landlord and its agents for including in the landlord’s claim sums which were not properly due and for not informing the tenants of the spiralling cost of the roof repairs. He also criticised the agents for their lack of independence, characterising their approach as seemingly being intent only on recovering as much as possible of the cost from the tenants.
The lesson for landlords and their agents is that attempts to collect ‘full recovery service charges’ in a way which does not properly balance the interests of tenants and landlords is likely to get short shrift in the court. Indeed, tenants are increasingly looking to negotiate caps on such clauses.
If you have problems with any aspect of a lease, contact <<CONTACT DETAILS>> for advice.
Landlords to Lose Right of Distress
The Department for Constitutional Affairs has published the draft Tribunals, Courts and Enforcement Bill. If enacted as it stands, it will deprive landlords of the ability to levy distress as presently used, thereby removing an effective weapon in cases of rent arrears.
The change in the law follows much adverse comment on how the law of distress is operating in practice and the voicing of concerns as to whether its operation could represent an infringement of the human rights of tenants.
Under the present law, when a tenant is overdue with rent, the landlord or the landlord’s bailiff is entitled to enter the premises and seize goods to the value of the rent due, which can then be sold to pay the outstanding rent. The remedy is normally very effective since there is no need to give notice to the tenant, the right to distraint being available the day after the expiry of the period of grace for payment of the rent due. No court process is needed.
The Bill will replace distress with a procedure termed ‘commercial rent arrears recovery’ where the outstanding arrears exceed a minimum sum. The procedure will restrict the amount recoverable by landlords of commercial premises to the rent unpaid. Insurance costs and service charges unpaid will not be recoverable using distraint, nor will it be usable for arrears on residential or mixed-use premises. Furthermore, the tenant will be entitled to receive a notice, which they can apply to have set aside. The tenant will also be able to claim setoff of any sums owed by the landlord to the tenant.
These changes will make it more difficult for landlords to avoid losses when tenants become insolvent.
Whether or not the Bill reaches the statute book will depend on whether time can be found for it in the parliamentary timetable.
Contact us for advice on your options if you have a tenant who is in arrears of payment.
New Planning Guidance for Local Authorities
A renewed drive to improve roads, communications and rail networks and to encourage new, more affordable housing developments has been unveiled. The Government has issued guidance on planning obligations, aimed at local authorities, which covers a diverse range of topics – including speed, transparency and public involvement in the formulation of policies – and sets out procedures to be followed in planning applications.
The guidance should bring increased certainty as to the outcome of a planning application and speed up the planning permission process. The need for transparency and accountability for all parties involved features strongly.
The issues covered include the early instigation of negotiations with developers, standard form agreements, the use of set service standards and the monitoring and enforcing of planning obligations.
The publication of the guidance coincides with an Audit Commission report which encourages local authorities to spend more resources in order to improve policies for putting into practice their planning obligations.

Planning Consent Time Bar Strictly Enforced
The Court of Appeal has confirmed that where there is a breach of planning consent through failure to comply with the use specified in the consent, where this relates to use as a single dwelling, the right to enforce the terms of the consent must be exercised within four years of the breach.
The case concerned Arun District Council, which had granted permission for an extension to a property on the condition that it was occupied by the dependent relative of the occupier. The extension was later let to students, in breach of the planning consent, and the property was effectively occupied as two dwellings. Eight years later, the Council sought an enforcement order against the homeowner. The Council argued that it could bring the action because there is a statutory ten-year period for the bringing of such actions where there is ‘any other breach of planning control’. However, the section of the Town and Country Planning Act which deals specifically with breaches relating to buildings to be used as a single dwelling specifies a four-year period, from completion of the works, during which any enforcement action must be brought.
The case turned on the fact that there is a specific section in the Act which relates to such breaches, so it was clear that the intention of Parliament was to apply one time limit in such cases and another time limit for other breaches.
Contact <<CONTACT DETAILS>> for advice on any commercial property or planning matter.
Planning Gain Supplement – the Next Step
The recent Pre-Budget speech outlined the Government’s response to the various consultations which have gone on following its announcement that it intends to introduce Planning Gain Supplement (PGS), which will be a tax on the unrealised increase in the value of land which accrues when planning permission is granted over it.
The major features of PGS are intended to be:
·        that it will apply to both residential and non-residential land;

·        that developments which are currently the subject of formal planning proceedings will not be subject to the new tax;
·        that the tax rate (still unannounced) will be ‘modest’; and
·        that a significant proportion of the proceeds of the tax will be applied towards the local infrastructure of the area in which the planning application applied.
The tax will not be brought in before 2009 (not in 2008 as originally intended).
“Developers who have been holding off development projects to see what is likely to happen regarding PGS might wish to consider making sure they get their development plans ‘in planning’”, says <<CONTACT DETAILS>>. “We can advise you on any planning or development law matter.”
Public Access for People with a Disability
There have been a number of recent cases concerning difficulties with regard to access to buildings by people with a disability. The Disability Discrimination Act requires that anyone who offers goods, services or facilities to the public must not discriminate against disabled people by:
  • refusing to provide them with a service or providing a lower standard of service;
  • providing them with a service on worse terms without this being justified; or
  • failing to make reasonable adjustments to the way services are provided and/or to the physical features of the premises from which services are provided so that they are accessible to all.
The problem with the legislation from a practical point of view is that it will be up to the courts to decide what constitutes a ‘reasonable adjustment’ and this could be contentious.
So far, no real pattern has emerged regarding the definition of a reasonable adjustment. In an early case, Ryanair and Stansted Airport were found to have discriminated against a disabled passenger because the airline charged him extra for the use of a wheelchair at the airport. On the other hand, a disabled railway passenger, who needed to cross to the opposite platform when there was no lift available, lost his claim because the provision of a taxi to the other side of the station was regarded as a reasonable adjustment.
At the time of writing, a case is being prepared against retail group Arcadia by a disabled customer who can only access the ground floor of her local Burton shop because of the absence of lifts.
Because the legislation is relatively new, there have been few cases so it is difficult to know what will and what will not be regarded as a reasonable adjustment. The reasonableness of any adjustment will in part depend on its cost of provision, the financial resources of the service provider and other practical aspects. However, until case law in this area gives greater clarity to the issue – which may take some years – it is a sensible precaution for service providers to make sure they are familiar with the guidance supplied by the Disability Rights Commission, available on its website at, and follow it as far as is practicable.
Rent Arrears – New Protocol
Since October 2006, a new protocol has applied where a social landlord wishes to gain possession of a property occupied by a tenant under a secure tenancy, where possession is sought on the grounds of arrears of rent. It does not apply to claims in respect of long leases.
The protocol requires that the landlord should contact the tenant as soon as possible after the tenant’s rent falls into arrears, to discuss the arrears, the tenant’s financial position and his or her entitlement to benefits.
The protocol has special protections built into it in order to protect vulnerable tenants – for example where the tenant is a minor, has difficulty in reading or understanding the information from the landlord, may require an assessment for community care or where there are factors which mean that the Disability Discrimination Act 1995 applies.
In general, proceedings will not be appropriate where the Department for Work and Pensions can arrange to pay the outstanding rent from the tenant’s benefit entitlement or where the tenant can demonstrate that he or she has provided the local authority with the information necessary to have a reasonable prospect of substantiating a claim for housing benefit and has paid the sums due which are not covered by housing benefit.
Proceedings for possession will normally be postponed if the tenant agrees to pay back the arrears and keeps to the agreed schedule of repayment.
Taking the Light – Developers Beware
A recent case will give property developers whose developments are likely to be opposed on the grounds of ‘taking the light’ good reason to pause for thought before pressing on with work in the face of objections.
The case involved the owner of a maisonette. Across the street from his home, properties were being developed which would result in a reduction of light to the living room of the maisonette, mainly due to the addition of a penthouse floor at the top of the premises being developed. The owner of the maisonette obtained an expert’s report which was sent to the developer. This showed that the light in his living room would be reduced from approximately 67 per cent ‘well lit’ to a maximum of 45 per cent. The maisonette owner used the room for model-making and painting, as well as reading, and considered this a serious loss of amenity. He therefore sought to prevent the development as planned by seeking an injunction restraining the developer from building a penthouse level floor as laid out in the plans. For the developer, the penthouse level would add approximately £150,000 to the value of the property under development.
Such cases are normally settled by the payment of compensation to the person whose light is affected. In the lower court, the injunction was not granted and an order was made that compensation should be assessed. The maisonette owner appealed to the Court of Appeal. During the time taken for the appeal to come to court, the developer continued building works to the original plan.
The Court of Appeal considered that the maisonette owner’s loss of amenity would be significant and not capable of rectification by the payment of a small amount of damages. It granted the injunction, requiring the developer to remove the part of the building which infringed it.
This decision contrasts with another case in which an attempt to obtain an injunction for the taking of light failed when it was revealed that for the entire prescription period, the premises in question had been boarded up, meaning that the right to light was not acquired.
Says <<CONTACT DETAILS>>, “The decision in the first case appears to have been significantly influenced by the fact that the maisonette was the man’s home. Developers who proceed with building works in similar circumstances should be aware of the risk they are taking.”

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