Commercial Property Titles ~ Jan 2008 Titles


Council Loses ‘Too Big’ Claim
The Court of Appeal has recently issued a ruling that will be regarded with dismay by councils as it has allowed a man with a four-bedroom council house to retain it after he was initially told that it was too large for his needs.
Faced with being moved to a smaller property, Mr Randall, a tenant of Wandsworth LBC, reacted by moving members of his family into the property he rented. Mr Randall had succeeded to the tenancy after the death of his father. Six months after his father’s death, the Council served Mr Randall with a notice seeking possession of the house on the ground of under-occupancy by a successor tenant. The Housing Act 1985 allows councils to obtain possession of properties in such circumstances. The Council offered Mr Randall alternative accommodation in the form of a one-bedroom flat, which he declined to accept.
Before the Council could bring proceedings for repossession, Mr Randall’s mother and half-sister moved in to the house to live with him. The Council obtained a possession order, which Mr Randall appealed on the ground that the judge had not taken sufficient account of the needs of his mother and half-sister, since the judge did not regard them as members of Mr Randall’s household at the date on which Mr Randall succeeded to his father’s tenancy.
On appeal, Mr Randall was successful in persuading the circuit judge that the correct date for assessing the suitability of the alternative accommodation offered was the date of the hearing (when he had his mother and half-sister with him), not the date the tenancy had passed from his father to him.
Wandsworth LBC appealed against the decision but the Court of Appeal sided with Mr Randall, ruling that the family of a tenant includes those living with the tenant at the date of the hearing.
This case has profound implications for councils and it is expected that pressure will be put on the Government to make the legislation specific on the point of the exact time which is the ‘relevant date’ for the purposes of the legislation. As it stands, it looks as though tenants who are likely to be rehoused in smaller properties will be able to retain larger premises by moving relatives in to live with them prior to the hearing to assess their accommodation needs.
Partner Note
Wandsworth LBC v Randall [2007] EWCA Civ 1126.
Deferment Rate Challenge Defeated
The Court of Appeal has rejected a challenge to the latest guidance on the ‘deferment rate’ – the deemed rate of return applicable to let properties of different types. The deferment rate is one of the main elements in the calculation of the value of the freehold interest of a property when negotiations are ongoing for the purchase of the freehold by the tenant or tenants or for the extension of a long lease on a property.
The relevant statute provides that the assessment of the price at which the freeholder's interest (or the extended lease) is to be acquired is, in principle, fixed by reference to the market value of the interest, as it would be if unaffected by the existence of the statutory rights. In other words, the value is fixed by the right to receive the rental income stream during the period of the lease and the value of the prospective right to vacant possession at the end of the lease term. The latter, conventionally, is arrived at by taking the open market value of the freehold interest with vacant possession at the valuation date and adjusting that value downwards by application of a deferment rate. The deferment rate is defined as ‘the annual discount applied, on a compound basis, to an anticipated future receipt (assessed at current prices) to arrive at its market value at the valuation date’.
In September 2006 the Lands Tribunal issued guidance that the appropriate deferment rates should be 4.75 per cent for houses and 5.0 per cent for flats, regardless of where in the country the property is situated.
In the case in point the vacant possession value of a freehold interest in a house was put at £2,085,000. The tenant argued that a discount rate (the deferment rate) of 6 per cent should be applied for the unexpired term of the lease, which would lead to a ‘present value’ of the reversion of £558,780. That, together with the capitalized value of the ground rents receivable, would give a value for the freeholder's interest of £559,927. The existing value of the current lease was £1m, which would give a total value of £1,559,927. Accordingly, the ‘marriage value’ created by the purchase by the tenant would be £525,073, being the difference between the two figures (£2,085,000 – £1,559,927). The law requires that the tenant pays half of that figure to the freeholder. The higher the deferment rate, the less the tenant will pay. The owner challenged the tenant’s claim, arguing that a lower deferment rate should apply.
The Court of Appeal ruled that the rates were appropriate as general guidance throughout the country except that there does need to be a distinction made between prime locations in London and properties elsewhere. The Court also ruled that the ‘hope value’ attaching to a property could not normally be included as a separate element in its valuation when negotiating lease extensions or the purchase of the freehold interest.
Says <<CONTACT DETAILS>>, “This decision will be welcomed by landlordswho stand to receive a larger sum if they face claims by tenants for the purchase of the freehold of the properties they let as it makes it more difficult for tenants to argue for a higher deferment rate. In some circumstances, however, there may well be good reason to argue for a different deferment rate to apply and this can affect the price payable considerably. We will be pleased to assist you in negotiating the best deal in all cases.”
Partner Note
Cadogan & Anor v Sportelli & Anor [2007] EWCA Civ 1042. See
Empty Properties – Rating Change Approaches
It has for some years been a bit of an oddity that with the economy buoyant, quite generous reliefs from business rates have been available where commercial premises are unoccupied.
Ironically, a change in the law reduces these reliefs just as the economy looks to be coming off the boil.
Vacant non-domestic properties are generally exempt from rates for three months. After that, rates are payable at 50 per cent until the property is again in occupation. Industrial properties and storage facilities enjoy 100 per cent rate relief until re-occupied. From 1 April 2008, subject to designated exemptions, the reliefs will disappear – after three months for non-domestic properties generally and after six months for industrial and storage premises.
For landlords with property portfolios including commercial properties currently unlet, there is now a strong incentive to find tenants before the changes have an impact.
For advice on any commercial property matter, please contact <<CONTACT DETAILS>>.
Partner Note
The Rating (Empty Properties) Act 2007 can be found at
The legislation is not yet in final form. There are exemptions for certain not-for-profit organisations, provided (it seems) that the property is to be occupied by a not-for-profit tenant.
European Court Backs Squatters’ Rights
The European Court of Human Rights has handed down a judgment which accepts that the UK's law of ‘adverse possession’ is not a breach of the property owner's human rights.
Under UK law, anyone who is allowed unopposed occupation of a piece of land for more than the statutory period can acquire the legal right to the land. This is called adverse possession. Numerous safeguards for property owners were introduced by the Land Registration Act 2002, which introduced a system of notices before the title could be transferred.
An earlier decision of the Court had indicated that to pass the legal title to land by the exercise of ‘squatters’ rights’ would breach the human rights of the original owner as the title would pass without any compensation being paid. This decision was, unsurprisingly, contested in a case in which the land concerned, which had planning permission, was estimated to be worth £10m.
The judgment will serve as a wake-up call to property owners who allow others to occupy land they own as if it were the squatters’ own land.
The system now in place, which involves giving notices to owners of land when an application to transfer the title is made, should reduce the frequency with which ownership by adverse possession is claimed. The new system also makes it relatively easy to prevent the registration of title to the land by squatters. However, there is still much unregistered land in the UK and it is often difficult to ascertain the ownership of that land in order to give the required notices. Furthermore, an owner who is unable to deal with notices served, by way of infirmity or because they are absent from their home, could face particular problems if steps are not taken to oppose the registration of title. Once an application for registration has been refused, if the squatter remains in occupation for a further two years and submits a further application, this will be accepted by the Land Registry.
If you have property occupied by someone else which is not the subject of a lease or licence arrangement involving a payment, take advice to make sure you are not inadvertently exposing yourself to avoidable risk.
Partner Note
European Court of Human Rights (ECHR) judgment, 1 October 2007. Reported in the Times. The original ECHR ruling can be found at
Failure to Follow Procedures Creates Costs
One of the more frequent criticisms of the legal process is that it sometimes takes a long time to resolve disputes through the courts.
There exist a number of pre-action protocols, the purpose of which is to speed up the legal process by identifying areas of agreement between the claimant and defendant and to reach agreement wherever possible before formal court proceedings commence. Very often, the use of the protocols means that the dispute is settled without a court hearing being necessary. This saves time and costs for all, so the courts are very keen for people in dispute to make use of the pre-action protocols to the maximum extent possible.
Recently, a firm of consulting engineers wished to bring a claim against a Hospital Trust. The relevant construction industry protocol required them to write to the Trust, setting out why they considered they were owed money and inviting agreement or disagreement. The next step would then be a meeting to progress matters. The engineers sent a very sketchy letter, with little information regarding why the sum was believed to be owing. The Trust requested more information, but this was not supplied and legal proceedings were commenced.
In court, the judge, Lord Jackson, took a dim view of the actions of the firm of consulting engineers and stopped the proceedings so that the pre-action protocol could be followed. He also ordered them to pay the legal costs of the NHS Trust.
If you have a construction dispute, you should always ensure you adhere to the pre-action protocol (see Failing to do so can be costly and can prolong the time it takes to resolve the matter.
Partner Note
Cundall Johnson & Partners LLP v Whipps Cross University Hospital NHS Trust [2007] EWHC 2178 (TCC). See
HMOs – Reminder for Landlords
Landlords (strictly ‘managers’) of Homes in Multiple Occupation (HMOs) are reminded that new minimum standards were introduced on 1 October 2007, which include the requirement to:
  • provide the manager’s contact details to each household in the HMO and have them displayed prominently in the HMO;
  • maintain fire escapes free from obstruction and clearly signposted and maintain in good condition fire fighting equipment and alarms;
  • take all reasonable measures to protect the occupants from injury, in particular as regards roofs, balconies and windows;
  • maintain the supply of electricity, water and (if applicable) gas and supply the local authority with electrical and gas safety certificates when requested;
  • maintain the drainage and provide facilities for the disposal of waste;
  • maintain in good order (subject to normal use by the tenants) the fixtures and fittings supplied; and
  • arrange for safety testing of the gas and electricity supplies at appropriate intervals.
Failure to comply with any of these regulations without reasonable excuse can lead to a fine of £5,000.
Partner Note
The Management of Houses in Multiple Occupation (England) Regulations 2006 and the Licensing Management of Houses in Multiple Occupation (Additional Provisions) (England) Regulations 2007.
See also the article in The Solicitors Journal, 7 September 2007 p 1115-6.
House Owner Pays Price for Contract Failure
Failure to make contractual terms clear is a sure recipe for trouble and in construction contracts, where the sums of money involved can be substantial, getting the contract terms agreed up front is always sensible.
In a recent case, a woman arranged with a property developer that the developer should carry out refurbishment work on her property. The development of the property was to proceed in three stages and it was agreed that the developer would start the first phase as soon as the necessary planning permission and building control permission were obtained.
The woman made up-front payments to cover professional fees and to fund the commencement of the works. Unsatisfied with the subsequent progress, she demanded an account of how the money had been spent and decided that now was the time to have a formal contract. She refused to make further payments until a schedule of payments based on progress achieved was agreed. The developer refused to continue without further progress payments. He sent a solicitor’s letter to the woman demanding payment of the sums due.
Each side accused the other of repudiating the original contract and eventually the dispute ended up in court.
The court had to decide the following issues:
  1. Was there a binding contract or contracts?
  2. If there was a binding contract or contracts, what were the contractual terms?
  3. If there was a binding contract or contracts, was either party to the dispute in breach of the contract(s)? and
  4. If there was a breach of contract, what damages resulted?
The court concluded that the woman had entered into two separate contracts with the developer. The first was with regard to the first phase of the works. She had repudiated this contract when she regarded the developer’s breach of the contract as a repudiation of it. Her response had not been the correct one. She had herself created a repudiatory breach of contract by failing to pay the second instalments due under the contracts. The developer was therefore entitled to damages for the profits he would have made had the contracts been completed and paid for as agreed.
This case shows how what may seem to be a reasonable reaction – in this case declining to make payments when a development falls behind schedule – can lead to difficulties. In this case, the problem was compounded by the woman’s response to the solicitor’s letter sent on behalf of the developer. Had the original contract contained a clause which linked payments to the meeting of specific targets, then each side would have known where it stood and the dispute could probably have been avoided.
The time to get a contract right is at the beginning. We can help you negotiate a building contract that ensures your interests are protected. Contact <<CONTACT DETAILS>> for advice.
Partner Note
Mirimskaya v (1) George Evans and (2) Dezigner Living Ltd. [2007] QBD (TCC)
5 September 2007. See The Solicitors Journal, 28 September 2007, p1226.
Making Your Site Safe – Requirements
Under the Construction (Design and Management) Regulations 2007, the person responsible for the management of a building site is required, if the construction phase involves more than 30 calendar days or 500 person-days of work, to appoint a Construction Design and Management (CDM) coordinator, who must appoint a principal contractor for the project.
The CDM coordinator is responsible for the coordination of health and safety measures during the construction and for the maintenance of the health and safety file. When the construction is complete, the health and safety file must be passed to the client who commissioned the project.
The principal contractor must plan, manage and monitor the construction to ensure that it does not pose risks to the health and safety of workers and visitors to the site. This includes drawing up the necessary site safety rules and supplying contractors with the information necessary for them to carry out their work without risk to themselves or any other person. This will include providing induction training and any other training which may be appropriate. The principal contractor is also responsible for controlling access to the site. There are various other requirements for the principal contractor to consult with site workers on health and safety issues and to maintain for inspection copies of all relevant information.
Contractors working for the principal contractor are required to pass on to the principal contractor any information which might affect the health or safety of any person engaged in the construction work or who may be affected by it. Such information should be included in the health and safety file.
Any failure to adhere to the requirements which leads to an injury will normally leave the principal contractor in the line of fire as regards any claim that results, so it is important that the requirements are understood and enforced to the fullest possible extent.
If you require further information on your site safety responsibilities, we can advise you. The Construction (Design and Management) Regulations 2007 can be found at .
One Invalid Attempt Does Not Stop Another!
Recently, a case came to the High Court which addressed the question of in what circumstances an invalid attempt to serve a legal notice might invalidate a subsequent notice served without delay.
The case concerned a block of flats. In December 2005 the tenants served a notice on the landlord seeking collective enfranchisement (the right to buy the freehold interest in the block of flats), which is available under the Leasehold Reform, Housing and Urban Development Act 1993. This notice contained technical errors and the landlord rejected it, on the ground that it was not legally valid.
The tenants accepted that the original notice was invalid and in April 2006 they served a new notice which rectified the errors. The landlord rejected this also – on the basis that the tenants had served a previous notice. The Act does not normally allow the issue of a second notice.
The High Court ruled in favour of the tenants. In general, the issue of a document which is not legally valid is a nullity in law – it is treated as if it did not exist. Where there are minor inaccuracies, this may not be the case, but in this instance the first notice could not be regarded as a notice under the Act and therefore the section of the Act which would have invalidated the second notice did not apply. The second notice was therefore a valid notice on that score.
A second argument made by the landlord, that it would be unjust for the landlord to have to accept the second notice, also failed to impress the judge. In his view, the fact that the landlord had replied to the first notice but did not rely on it meant that an argument that it was unfair to have to accept the second notice was unfounded. Such an argument could only be advanced if the landlord had relied on the first notice (i.e. had acted on it in some way).
This case illustrates the point that an invalid attempt to serve a notice does not normally prevent the later service of a valid one. Secondly, how one disposes of a notice which contains defects can, potentially, have an effect on one’s later legal position.
Partner Note
Sinclair Gardens Investments (Kensington) Ltd. v Poets Chase Freehold Co Ltd. [2007] EWHC 1776 (Ch).
Leasehold Reform, Housing and Urban Development Act 1993, Ss 13 (3) and (8).
Planning – Whole Operation Need Not Take Place in One Place
Land with planning permission for use for commercial or industrial purposes is generally quite a lot more valuable than agricultural land, so when a pharmaceutical company realised they had ‘legitimised’ the use of their land for what they considered to be an industrial process, they applied for a certificate of lawful use from the local authority.
What had happened was that the company had changed the use of a conventional poultry and egg unit so that it was now used for the production of eggs which were free from specified pathogens. This was the first phase in the process for the production of vaccines. For more than ten years, the council had failed to take any enforcement action regarding the change of use, which therefore became lawful.
The company then sought a certificate confirming that the land was used for an ‘industrial process’ which involved the making of an article (i.e. part of the process of making the vaccine). The council refused, arguing that the process carried out on the site in question was incidental to a process carried out on a site within a different ‘planning unit’ (i.e. elsewhere) and, for the certificate to be justified, the processes had to be carried out within the same planning unit.
The court found that the question was a simple one. Was the land used for the making of, or incidental to the making of an article – using the word ‘incidental’ in its everyday sense? If the answer to that question was in the affirmative, as was the case in this instance, the fact that part of the process might take place elsewhere was not relevant. The certificate of lawful use had therefore to be given.
The message for occupiers of land and planning authorities alike is that a failure to enforce planning controls can legitimise a use of land which contravenes planning regulations.
Partner Note
Winchester City Council v (1) Secretary of State for Communities and Local Government (2) Wickham Laboratories Ltd; QBD (Admin) 20 Septemebr 2007. Reported in The Law Society’s Gazette, 4 October 2007.
Planning Bill – Speed, Sustainability and Environment
The Government’s new Planning Bill has recently been published. This follows an extensive review and consultation procedure after the publication of the White Paper, ‘Planning for a Sustainable Future’, in May 2007.
The main aim of the Bill is to simplify the planning process. Currently this is regarded as a major weakness in the UK, especially as regards large infrastructure projects for which the UK’s tortoise-like planning process is seen as a major obstacle to the provision of an infrastructure capable of coping with economic and population growth. This problem is to be tackled by the creation of an Infrastructure Planning Commission, which will deal with planning matters relating to any development which ‘is or forms part of a nationally significant infrastructure project’.
On the ‘micro’ scale, very small projects, such as loft conversions, will not in most instances require planning permission.
The Government has also indicated its commitment to the environment by making environmental protection a major consideration at all stages of the planning process and emphasising the role of ‘sustainable development’. It has yet to be seen how this commitment will pan out in practice, although it is hoped that one goal – to reduce the average time it takes for a major planning decision to be made to less than a year – will be achieved.
Partner Note
The Planning Bill was introduced by Hazel Blears on 28 November 2008. See
The Explanatory Notes can be seen here
Policy Wording Negates Claim
Yet another case illustrates the wisdom of reading through the small print of commercial insurance policies to make sure that the risks you think are covered are actually covered by the policy.
In the case in point, supermarket giant Tesco was denied the right to claim compensation for the sum of money it had to pay out to Network Rail when construction operations Tesco had carried out caused the collapse of a tunnel, thereby causing a loss of revenue to Network Rail because their trains could not use the tunnel for six weeks.
When Tesco sought to reclaim the costs from its insurers, the claim was turned down on the basis that the policy covered only losses which were caused by a harm for which a liability arose in the law of tort. In particular, the policy covered losses resulting from nuisance to or trespass over the land concerned. The loss suffered by Tesco was not a loss due to a tort, so it had no right to claim on its policy.
Says <<CONTACT DETAILS>>, “You cannot be too careful when negotiating insurance. Make sure you read and understand the policy, particularly the limitations on cover, or you could get a nasty shock. We can advise you on the meaning of the wording of your policies.”
Partner Note
Tesco Stores Ltd. v David Constable and other members of Lloyds syndicate 386, QBD Comm, 14 September 2007. Reported in The Law Society’s Gazette, 4 October 2007.
Serviced Building Plots – VAT Changes
HM Revenue and Customs (HMRC) have announced changes to the VAT treatment of serviced building plots in a new briefing (Revenue and Customs Brief 64/07). This takes account of the recent VAT Tribunal decision in Douglas Virtue & Sonia Virtue T/A Lammermuir Game Services [V20259] and will affect developers of properties generally.
A serviced building plot is a plot of land on which the civil engineering works have been carried out in order to facilitate construction. As such, the plot has electricity, water, sewerage and drainage and, if applicable, lighting and/or gas available to it.
In the past, a supply of such a plot has been treated as two supplies for VAT purposes – a supply of the land (exempt from VAT) and a supply of the civil engineering services (standard-rated for VAT purposes).
Following the Tribunal decision, HMRC now accept that there is only a single exempt supply of land in such cases.
This in turn means that where civil engineering services are supplied to a landowner, these should be zero-rated when being made in the course of the construction of a building designed as a dwelling, or buildings intended for use solely for a relevant residential or a relevant charitable purpose. For this to apply, HMRC expect that:
  • the landowner holds sufficient planning consent to demonstrate that the civil engineering works were carried out in the course of construction of a building designed as dwellings, or buildings intended for use solely for a relevant residential or a relevant charitable purpose;
  • the civil engineering is closely connected with or facilitates the construction of buildings; and
  • the construction of the buildings will follow on closely after the completion of the civil engineering works.
Otherwise, such supplies will be standard-rated.
The ruling will affect developers of properties of various kinds, including DIY house builders. The new briefing can be found at
Partner Note
Source – ICAEW Tax Faculty weekly newswire No. 380, 20 October 2007. See
Squatter Must Prove Exclusive Occupation
When an application is made to register land by adverse possession (the legal term for ‘squatters’ rights’), the onus is on the person claiming possession of the land to prove their right to claim the title to it.
A recent case dealt with a situation in which agricultural land was claimed by a man who asserted that he had been in exclusive occupation of it since 1991 and had built fencing and a locked gate so that he could graze sheep and horses on it. He alleged that he had occupied the land to the exclusion of the owners of the legal title to it since that time. He claimed that he had therefore met the requirement to have had sole and exclusive occupation of the land for twelve years and was thus legally entitled to have the land registered in his name. The court upheld his claim. However, the owners of the ‘paper title’ appealed.
On appeal, the court judged that the man had failed to prove that he was in sole and exclusive occupation of the disputed land before 1995. His claim therefore failed.
Says <<CONTACT DETAILS>>, “Such cases will always be decided on the facts, so it is important to obtain and retain as much evidence as possible when bringing or disputing a claim or if such a claim is a possibility in the future.”
This case arose prior to the introduction of the Land Registration Act 2002, which made changes to the law. A system of notices was put in place which informs anyone with an interest in the land that an application has been made by someone to register title to it in their name(s). This allows the owner to prevent the application. However, if the squatter has occupied the land for the requisite period and is allowed to remain in possession unopposed for a further two years after the application is made (i.e. the owner fails to take steps to evict them), then a second application to register the land in the squatter’s name will be successful.
The system now in place should, in time, make such claims less frequent, especially as regards registered land. It is a worthwhile precaution to ensure that land is registered if there is a possibility that it might be occupied by squatters and title to it could be claimed by adverse possession as it makes the chances of failing to receive the relevant notices less likely.
Partner Note
SS Global and others v Christos Kyriacou Sava ChD 28 Septemebr 2007. See The Law Society’s Gazette 18 October 2007, p 27.
VAT Partial Exemption Changes
HM Revenue and Customs (HMRC) have announced changes to the treatment of input VAT that will affect businesses which make exempt as well as taxable supplies.
Under the previous system, a business which purchased an asset used for both exempt and non-exempt supplies could reclaim all of the input VAT when it was purchased (called ‘Lennartz’ VAT accounting, following the leading case on the matter) and then pay output tax relating to the use of the asset during its period of use. The alternative, of claiming the same proportion of the input VAT that applied to the taxable use of the asset, was also allowable.
Modifications were made on 1 November 2007 relating to the period over which output VAT needs to be accounted for when using the Lennartz system.
Guidance on the revised rules can be found on HMRC’s website at
It has been announced recently that the European Union is to review the whole area of partial exemption for VAT and, in particular, is likely to abolish the availability of Lennartz VAT accounting on the purchase of freehold property.
In a further move designed to increase VAT receipts, HMRC have announced that ‘independent living units’ for the elderly that are built in the curtilege or grounds of a care home do not meet the requirements for zero-rating and their construction will therefore be subject to VAT at the standard rate.
Partner Note
Source – ICAEW Tax Faculty Weekly Taxwires numbers 382 and 383, November 2007.
See also Revenue & Customs Brief 66/07.

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