Commercial Property Titles ~ July 2006


Closure Order Based on Balance of Probabilities
Where a property is suspected of being used for illegal purposes (such as for dealing in drugs), a council may apply for an order to close the building. The relevant legislation is silent as to what the standard of proof required is when such an order is to be made.
The Court of Appeal considered this issue recently, when dealing with an appeal by a Liverpool man whose property had been subject to a closure order on the grounds that it had been used for the taking of illegal drugs. The owner argued that a closure order must be based on the criminal burden of proof (‘beyond a reasonable doubt’) that is required for an anti-social behaviour order (ASBO) to be made.
However, the Court ruled otherwise, considering that closure orders cannot be considered to be as prejudicial to a person in that they carry no allegations against a person, are directed at premises and are of shorter duration than ASBOs. Accordingly, the appropriate burden of proof was the ‘balance of probabilities’ test which applies in civil law.
Commercial Lease Settlement – Implied Terms Important
When a tenant wishes to break a lease with its landlord, it is normal for the termination to be dealt with by negotiations of terms between the tenant and landlord.
In a recent case, a tenant served notices on its landlord (The Legal and General Assurance Society) that it wished to terminate the two leases it held. The notices were given in good time to come into effect in December 2004. The tenant was required under the leases to pay its rents and to yield up the properties in good repair and with vacant possession. After a period of negotiation, the landlord and tenant agreed, in October 2004, a settlement figure for the dilapidations under the leases and the tenant covenanted that it would keep the premises in at least as good a condition until it vacated them.
The tenant then started trading elsewhere, but used the premises for storage after the agreed termination date. The landlord claimed that the tenant had left some items in the premises and had not yielded up the keys. Accordingly, argued the landlord, the tenant’s right to terminate the leases under the break clauses had been forfeited as it had failed to comply with the requirement that it delivered the properties with vacant possession. In the view of the landlord, the leases were therefore continuing. The tenant argued that if the leases had been continuing, the landlord had waived compliance with the other conditions of the break clause.
The landlord’s claim failed. It had accepted the break notices and had therefore agreed by implication that it had waived the right to reject the break notices. The tenant’s failure to surrender the keys was not sufficient to prevent vacant possession being given.
Says <<CONTACT DETAILS>>, “In this case, a more comprehensive agreement covering the breaks in the leases might have avoided the argument. The case does show that the courts are guided by the substance of the matter and minor non-compliances are likely to be regarded as inconsequential.”
Fire Safety Reform Guidance
With current fire safety law contained in over 70 different pieces of legislation, business managers in England and Wales will welcome the Government’s decision to reform the legislation to make it simpler and more accessible. However, according to a recent survey 35 per cent of businesses are unaware of how the reform will affect them, whilst nearly half of those surveyed were unsure as to how to go about making sure they comply.
The Regulatory Reform (Fire Safety) Order is scheduled to come into force on 1 October 2006. The reforms aim to improve fire safety by making it the responsibility of the employer or 'responsible person', who will be required to assess the risks of fire and take steps to reduce or remove them. Under the reforms, which also replace the 1971 Fire Prevention Act, businesses will no longer need a fire certificate – although fire and rescue authorities will still continue to inspect premises and ensure adequate fire precautions are in place.
The Office of the Deputy Prime Minister (ODPM) has published free general guidance on the reforms, entitled ‘A Short Guide to Making Your Premises Safe From Fire’. This emphasises that the fire risk assessment should pay particular attention to those at special risk, such as people who work alone or in isolated areas, children, parents with babies and disabled people. It must include consideration of any dangerous substance likely to be on the premises. Businesses employing five or more people must record the significant findings of the assessment. The guidance can be ordered ordownloaded from
In addition, the ODPM is producing a series of 11 guides, offering fire safety advice for different types of premises, some of which are now available at
Improper Rent Variation Means Arrears Unenforceable
A landlord who increases a rent in a way that is not specified in the tenancy agreement and then starts an action for possession of the property as a result of the tenant not paying the rent can face serious problems.
In a recent case, tenants of the Riverside Housing Association held leases which stipulated that their rents would be increased annually ‘with effect from the first Monday of June each year’. The Association did not increase the rents payable by some of its tenants when it could have done so in June 2000. Wishing to harmonise the rent review dates for all its properties, it delayed the rent review and applied an increase from April 2001. The Association did not alter the terms of the tenancy agreements to give effect to the new rent review date.
The tenants who were subject to the change did not challenge the legality of the new rents directly and, where appropriate, they applied for increased housing benefit to be paid.
However, in subsequent proceedings for possession of properties due to non-payment of rent arrears, a tenant challenged the approach, arguing that the arrears due to the increased rents were not lawfully due because the rent had been increased in a way which was not permitted under the lease.
The Association argued that time could not be of the essence of the agreement and, in any event, the tenant had behaved in a way which indicated acceptance of the increased rent, despite the defect in the way it had been implemented.
The Court of Appeal did not agree. It held that the tenant could not have accepted the improper variance of the rents, since he was not aware that the rent increase notices had been invalid. Also, the Association could not argue that time was not of the essence in the tenancy agreement. Furthermore, the Association could not rely on the conduct of the tenant to confirm agreement to an increase in the rent, because an argument based on the legal principle of estoppel can only be used to protect someone, not to enforce something on them.
Contact<<CONTACT DETAILS>>for advice on any commercial property matter.
Landlocked Land – No Right of Access
When a piece of land is landlocked (i.e. has no right of access over adjoining land so cannot be lawfully accessed by its owner), it is sometimes possible to obtain a right of way ‘of necessity’ over adjoining land. Recently, a case came to court which illustrated the limitations to this principle.
The case involved land which was bounded to the East and to the West by private land. To the North and South it was bounded by a piece of land and a highway respectively. Both of the latter pieces of land had been sold to the predecessor of the local authority, which now owned them. The landlocked land had been retained by the original owner and the conveyance of the adjoining land which was sold did not reserve any right of access over it.
When the landlocked land was subsequently sold, the company that bought it sought to obtain a ruling that it should be granted a right of way to its property over the land to the North, which would be necessary for the land to be developed. The local authority had previously indicated that planning permission for access to the highway would not be granted.
In the view of the court, at the time the land was sold, there had been no common intention that there should be a right of access across the land to the North. Accordingly a right of way of necessity should not be granted.
“The company that purchased the landlocked land was taking a considerable risk,” says <<CONTACT DETAILS>>. “However, the more interesting point is why the original owner of the land did not negotiate a right of way to the highway or through the land to the North prior to the sale, as this would presumably have added considerably to the value of the remaining piece of land.”
Landlords – Cooperation with Tenants Advised  
A tenant who wishes to break a lease normally finds himself facing a clause which states that for the lease to be terminated he must be in ‘material compliance’ with its terms. In practical terms this means the tenant must have paid the rent and any other required charges, the property must be in good repair and there must be no material breaches of covenants (for example sub-letting prohibited under the lease).
A breach will be regarded as being material only if the tenant has failed to make proper efforts to comply with the lease terms and this has an adverse effect on the landlord. For example, a breach of the lease terms that makes the property difficult to let might well be regarded as material.
In a recent case a tenant sought to break its lease and contacted the landlord with a view to agreeing the works necessary to comply with the repairing covenant in the lease. The tenant appointed a surveyor to advise on and supervise the necessary works and attempted to obtain the agreement of the landlord and/or a surveyor for the landlord to the schedule of works. The landlord failed to cooperate and its surveyor did not inspect the works as they progressed.
At the end of the break period, the landlord sought to prevent the tenant from breaking the lease on the grounds that there were further remedial works to be done. The court rejected this approach, concluding that the landlord had acted unreasonably in failing to cooperate and that the defects identified were insufficient to have a material negative impact on the landlord.
Says <<CONTACT DETAILS>>, “It is a risky strategy for landlords to fail to cooperate in circumstances such as these. It may well be easier, and is likely to be significantly less expensive, to negotiate with the tenant in order to agree a more complete programme of works before the break period than to hope that the court will back your contentions later on.”
Licensing – Cumulative Impact Policy Lawful
The right of a Council to refuse an application to extend the opening hours of a pub because of the cumulative effect of extended opening hours was recently confirmed by the courts.
The JD Wetherspoon chain had claimed that Guildford Borough Council could not refuse its application to extend the opening hours of its pub in the town based on a cumulative impact policy. The Council argued that the policy was designed to deal with the issues arising when there are a large number of licensed premises in an area. Its policy was that it would consider such applications in the light of representations received about the cumulative impact on the licensing objectives.
Faced with an application from Wetherspoon which amounted to a material variation in the licence terms, the Council could apply its policy and refuse the application.
No Offset of Damages for Tenant
Despite occasional appearances to the contrary, the law does try to make sure that legal battles are kept as uncomplicated as possible. An example of this can be seen in a case in which a tenant sought to offset rent payments due to a landlord on the basis that the tenant had not been compensated for defects in the building it occupied.
Engineering firm JH Fenner and Co Ltd. had arranged with the Welsh Development Agency (WDA) that the WDA would build a factory for it and that it would occupy it under a lease. The factory building had defects, for which Fenner sought recompense. The WDA sold the reversion of the lease to another company, Edlington Properties Ltd. In the absence of a settlement from the WDA, Fenner declined to pay its ground rent and insurance rent to the new owner. Edlington claimed for the arrears of both from the date of the transfer of the property into its ownership.
Fenner’s arguments were (in effect) that the right to set off ‘went with the land’ and that Edlington bought the land subject to the right of set off. The Court of Appeal, however, was unwilling to bring Edlington into the battle between the WDA and Fenner.
The Court confirmed the decision that where a tenant has a dispute with a landlord and that landlord subsequently transfers the ownership of the property to a new landlord, the tenant cannot set off against rents due to the new landlord any claims it might have against the old landlord, unless such a right was specifically included in the lease.
Says <<CONTACT DETAILS>>, “There have been a number of similar decisions in the past. In this case, Fenner was presumably trying to get Edlington to put pressure on the WDA to settle with Fenner. However, the ultimate effect of its failure to pay rent was to incur additional costs.”
Noisy Road Works Breach Human Rights
Human rights legislation has not been a fruitful area for householders seeking relief against nuisance, but a Reading man was able to use it to obtain compensation from his local Council. Reading Council had approved a road works scheme which greatly increased the noise at the man’s ground-floor home, preventing him from sleeping. In consequence, he added shutters to his windows and secondary double glazing. He asked the Council to meet the cost of the alterations.
When the Council refused to pay, he took them to court arguing that the intolerable noise levels interfered with his right to respect for his private life and home under the Human Rights Act. Although his rights had to be balanced with those of the local community, the court agreed that he had suffered particular loss because of the road works. He was awarded £2,000.
For advice on obtaining compensation for nuisance, loss of profits or other problems caused by road works and similar developments, contact <<CONTACT DETAILS>>.
Planning Gain Supplement Update
Increases in property prices led the Government some time ago to consider levying a new tax (more accurately, the reintroduction of the old Development Land Tax (DLT) – which was abolished many years ago – in a repackaged form) on the ‘planning gains’ which accrue to properties.
The proposed new tax, called Planning Gain Supplement (PGS) was mooted in 2005, but rather surprisingly not mentioned in Chancellor Gordon Brown’s March 2006 Budget speech. Despite not being in the Budget, it is still firmly on the agenda and could be brought in as early as 2008.
The basic idea of the tax is that someone who owns property for which they obtain planning permission will be taxed on the uplift in value that the planning permission produces. It is proposed that a proportion of the tax is passed back to the authority granting the planning permission so that the community will benefit from the permissions granted. It is likely that local authorities will use the windfall income to relieve their stretched capital budgets.
One practical effect of the introduction of PGS for landowners is that property prices for developable land may well be depressed as developers seek to mitigate the impact of the tax. Another is that as the implementation date nears, getting planning decisions from authorities may become more difficult and take longer. There will also have to be a tax relief regime similar to that which operated under the DLT to give tax relief against Capital Gains Tax for PGS suffered.
Interestingly, it is suggested that residential planning permissions (other than mere home improvements) will be caught by PGS and that the tax will bite if developers with existing permissions do minor site development works – normally done to keep planning permissions ‘live’.
PGS is currently the subject of an extensive consultation process between the Government and interested bodies. It is not yet known when more details of how PGS will work will be made public, although the autumn pre-Budget statement looks a likely bet. However, if you have property which might benefit from planning permission, it is worth thinking about what you should do in anticipation of PGS.
If you would like to discuss how PGS might affect your plans or need advice on any commercial property matter, contact <<CONTACT DETAILS>>.
Planning Should Allow Late EIA
It is normal for an Environmental Impact Assessment (EIA) to be carried out at the stage at which outline planning permission is sought for a property development. Recently, however, the European Court of Justice ruled that the decision as to whether an EIA should be carried out should not be limited to the outline planning permission stage.
The case involved a proposal to undertake a substantial building development for a leisure complex at Crystal Palace, which was opposed by a local resident.
Although many projects are now subject to compulsory EIAs, this decision opens up the possibility that more developments might be challenged at a later point in the planning application process.
Contact<<CONTACT DETAILS>>for advice on any commercial property matter.
Rented Homes – New Proposals
New proposals have been published by the Law Commission which are aimed at making renting homes cheaper and easier to accomplish.
The proposals centre on a revision of the standard types of lease arrangement, so that residential leases are dealt with by way of ‘occupation contracts’ for ‘secure’ or ‘standard’ leases. The thinking is that the use of such contracts will make the respective rights and obligations of the landlord and tenant clearer. Landlords will be free to use their own form of contract provided certain key elements are included.
The proposals include considerable changes to the current procedures for termination of residential leases. Possession proceedings will no longer be able to be commenced until one month after the ‘contract-holder’ has been given notice. One important change is the proposed abolition of the minimum requirement for assured shorthold tenancies that they last 6 months or more.
However, serious arrears of rent will be a mandatory ground for the granting of a possession order.
A summary of the proposals can be found at
Landlords should make themselves familiar with the proposals and consider whether they will use the standard forms or would prefer to use their own lease documentation. <<CONTACT DETAILS>> will be pleased to advise you on your individual circumstances.
Responsibility for Actions of Predecessor
A recent court case has opened up a potential minefield for acquirers of businesses. In the case, National Grid Gas (NGG), formerly Transco, was deemed to be liable for the environmental remediation costs for a site which was disposed of by a business it had taken over years before, and which it had never owned.
The site had been used for the production of coal gas in the 1950s and was identified as being contaminated with toxic organic chemicals as well as nickel. It was sold for housing in 1960. The original owner of the site was taken into British Gas (subsequently subsumed into Transco in 1986). The environmental contamination was identified in 2003 and the remediation costs amounted to £700,000, which was paid for in the first instance by the Environment Agency. When British Gas originally acquired the company that owned the site, the terms of the acquisition required that British Gas must take over responsibility for the company’s liabilities.
NGG advanced various arguments as to why it should not have to pay a contribution towards the Environment Agency’s costs, including the arguments that the legislation that gave rise to the liability (the Environmental Protection Act) did not exist at the time the contamination occurred and that at the time of the transfer to British Gas, no liability existed.
The Court was unimpressed with these arguments, finding in favour of the Environment Agency. In this case, the fact that the transfer of the property was statutory under the Gas Act of 1986 was of significance and the judgment may therefore be of limited application. However, leave to appeal directly to the House of Lords has been granted. If the decision is confirmed in the Lords, it is possible that the potential impact will be clarified as regards companies which have taken over businesses which in the past have owned properties which are found to be contaminated.
Environmental damage can be very expensive to deal with. Purchasers of land should consider ensuring that the property they are intending to buy has a ‘clean bill of health’ as regards contamination and/or to ensure against the risk of any clean-up costs. Contact <<CONTACT DETAILS>> for advice on all commercial property matters.
Tenants’ Right to Buy – Covenant Included
Since the passing of the Leasehold Reform Act 1967, tenants under long-term tenancies have been allowed, in normal circumstances, to buy the freehold of the property they rent. This has led to a stream of cases dealing with the appropriate value to place on the freehold reversion of the property for the purpose of setting the selling price.
One of the problems with land is that the title is frequently burdened by covenants, which operate to restrict the rights of the owner of the land – typically by imposing limitations on development or prohibiting certain types of use of the land. Such covenants normally pass from owner to owner.
The Lands Tribunal recently considered whether such covenants had to be included when a property was bought by a tenant. In this case the tenant and the landlord lived in adjacent houses and the tenant wished to acquire the freehold reversion of the house in which he lived. The lease contained a covenant that any new building, or extension built on the existing building, required the landlord’s consent, which could not be unreasonably withheld. There were similar covenants attaching to a number of properties in the area. The landlord had previously refused consent for an extension proposed by the tenant and at the Valuation Tribunal, the tenant was successful in obtaining a ruling that the covenant should be excluded when the property was conveyed to him. The landlord appealed to the Lands Tribunal.
The landlord’s argument was that the covenant should be included in the conveyance because it was reasonable and protected the amenity value of the landlord’s property (and other local properties) by helping to ensure that any development of the property was appropriate. There was nothing inherently unfair in retaining the covenant attaching to the land. The Lands Tribunal agreed.
Says <<CONTACT DETAILS>>, “A covenant or easement can increase or reduce the value of any property. We can advise you on all property matters.”
Village Green Registration Succeeds
In a recent case which dealt with several procedural issues, the Law Lords ruled that land may be registered as a village green (and hence available for public use) even if access to it has been denied to the public for a period of time. Furthermore, the majority of the Lords preferred a definition of ‘village green’ which could, it seems, include almost any type of land. The land in question was not a typical village green in that some of it was under water. It was not scenic and it was a large area of land (9 acres).
The case was brought by an inexperienced person who wished to confirm the right of public access to land near her home. Oxfordshire resident Mrs Catherine Robinson argued that the land in Oxford, called the Trap Grounds, had been used for recreational purposes for more than 20 years and thus qualified for registration under the Commons Registration Act 1965.
When she brought her claim in 2002, she gave evidence that the land had been used as a public space from 1970 to 1990, which left a gap of 12 years that would have caused her claim to fail. She was allowed to amend her evidence to make the relevant period 1982 to 2002.
In the leading judgment, Lord Hoffman (who quoted 19th century poetry in his judgment) concluded that the registration as a village green should go ahead and the owner of the land could not interfere with the right of local inhabitants to use it for lawful purposes.
The most practical effect of this decision is that it confirms that landowners who fence off such land can be successfully challenged by local residents. A number of similar cases had been put ‘on hold’ pending the outcome of this case.
“Developers and others who buy land without a sufficient investigation of its current and prior use are taking a significant commercial risk,” says <<CONTACT DETAILS>>. “We can advise on all aspects of commercial property transactions, including what steps buyers can take to reduce their commercial risks.”

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