A Current Tenant is a Good Tenant
A recent report by commercial property agents King Sturge (KS) may concentrate the minds of commercial landlords who may be faced with a substantial reduction in income if they have to find new tenants in the event that existing ones terminate their leases.
KS have reported that commercial rents have fallen (by 0.4 per cent) in the last year and predict that in 2009 rents will fall by a further 5.6 per cent, in 2010 by 4.7 per cent and 2011 by 2.1 per cent. More worryingly, KS also predict that there will be no upward movement in rents until 2013 and that landlords will have to resort to a variety of ‘sweeteners’ to obtain replacement tenants or to retain those they have.
In the present market, a landlord may feel that a bird in the hand (even one that is less than ideal) is worth two or more in the bush and it is to be expected that negotiations over rentals and lease terms will become more difficult, particularly where the property being let is retail premises.
We can assist you in negotiating new leases and lease reviews.
Partner Note
Reported in Retail Week, 12 January 2009. See
Communal and Inaccessible Areas Not Dwellings
HM Revenue and Customs (HMRC) have now issued guidance which will come as a disappointment, but not a surprise, to developers of student residences for universities and the like. The approach taken is said by HMRC to apply to all other forms of multiple-occupancy dwellings and will affect the tax position of such developments.
Whilst HMRC are now willing to recognise that student residences constitute ‘dwelling houses’, any areas to which the residents do not have access will not constitute a dwelling house and neither will any communal areas. Accordingly, shared kitchens, lounges and bathrooms will not constitute part of the dwelling and neither will staircases nor landings.
Partner Note
Ref: section 35 CAA 2001. See also the guidance at
Details Make All the Difference
For tenants wishing to exercise their right to break their lease, a recent case serves as a reminder of the importance of getting the details right.
Most leases contain clauses outlining the covenants which have to be complied with by the tenant and a clause which requires these to be fully adhered to in order for a notice to break the lease to be valid. Normally, that is the hard part – but there is another aspect of compliance which must not be forgotten: giving notice as specified in the lease.
In the case in point, information industry giant Reuters was ruled to have failed to give its landlord a valid notice of its intention to break its lease, despite having sent two letters by ordinary post and two faxes to the landlord at the appropriate time. The reason was that the lease stipulated that unless the notice was acknowledged, it had to be given by hand or sent by registered post or recorded delivery. The notices were not acknowledged. The Court of Appeal had no hesitation in ruling that the break notices were therefore not valid.
Says <<CONTACT DETAILS>>, “In this instance, the tenant was faced with considerable additional expense – including court costs – because it failed to take sufficient care to give a valid notice. We can assist you to make sure that such a fate does not befall you.”
Partner Note
Orchard (Developments) Holdings plc v Reuters Ltd. [2009] EWCA Civ 6.
Do the Paperwork or Risk the Consequences
‘Adverse possession’ is the legal name for what are commonly known as ‘squatters’ rights’ – the law by which a person can acquire legal title to land they occupy if they intend to occupy it on their own behalf, to the exclusion of others, and do so throughout a specified, uninterrupted period and follow a set notice procedure, which depends on whether the land is registered or unregistered land.
A recent case (which has gone to appeal to be heard in the summer) illustrates how contentious the interpretation of the law can be. It involved an area of farmland, which had been informally occupied by a farmer and used by him for farming. He ceased to have any formal right to occupy the land in 1977, when the company that owned it passed the title to a new company. The new company did not renew the licence under which the farmer had previously occupied the land.
In 1994, gravel was extracted from the land and the real owner kept the proceeds and reinstated the farmland. In 2007, the farmer sought a declaration that the land belonged to him and to have it registered in his name.
Before the court were the following questions:
Had he intended to occupy the land on his own behalf?
The court agreed he had, in spite of the fact that he had known nothing of the legal aspects of his occupation and did not know whether he was occupying with permission or not. In the view of the court, the intention to continue to occupy the land for as long as possible is sufficient.
Was the land occupied to the exclusion of others for twelve years?
With the benefit of unassailable evidence that the land was farmed throughout the period (except during the period in 1994 when gravel was extracted), the court concluded it was, notwithstanding the owners having accessed the land occasionally.
Had the farmer occupied the property under an implied licence?
The owner’s claim was based mainly on the conduct of the farmer regarding the extraction of gravel. However, the lack of any written or other evidence that a licence existed was regarded as indicative that the landowner had continued to acquiesce in the farmer’s occupation of the land.
This case is listed for appeal, but it illustrates the danger of allowing others to make use of your land without formalising the arrangement, even if a peppercorn rent would be the outcome.
Contact <<CONTACT DETAILS>> for advice on any property law matter.
Partner Note
J Alston and Sons v BOCM Pauls [2008] PLSCS 347. There is a good write-up in the New Law Journal of 6 February 2009 at pages 185-6.
Failure to Reserve Rights Means Landlord’s Plans Stymied
A landlord, who wished to add an extra floor to maisonettes it owned, recently came unstuck because the drafting of the leases for the maisonettes was insufficiently precise.
The landlord’s attempt to develop the property was opposed by the top-floor tenant. Firstly, he argued that the roof space above his flat (to which he had no access) was part of the premises demised to him under the lease. Secondly, he argued that the development would result in him suffering a loss of light, because his flat had three skylights.
The court agreed that the tenant’s lease did include the roof space and roof, despite the fact that there was a landlord’s obligation to repair the roof in the terms of the lease. The lease referred to the roof and walls of the premises and, furthermore, the skylights were clearly integral to the design of the tenant’s flat.
The tenant’s first ground for objection was successful. Although this meant that his argument regarding loss of light did not need to be heard, it is likely that the tenant would have been successful on that ground also.
In this case, the original lease had clearly not been drafted with any thought of a future addition of an extra storey in mind. Had it been, the landlord would have reserved sufficient rights to enable it to undertake the works. The tenant was therefore in a position to prevent the development.
When negotiating leases or contracts it is important to think ahead to make sure that any future rights required are preserved as well as those needed presently. Contact us for assistance in the negotiation of legal agreements and the preparation of all necessary documents.
Partner Note
Dorrington Belgravia Ltd. v McGlashan. Unreported.
Fitness for Purpose – Knowledge Critical
One of the most important principles of law governing buyers and sellers is that an item sold must be fit for the purpose for which it has been supplied. It is unusual for a ‘fit for purpose’ argument to arise in a building dispute, but cases do crop up from time to time.
In a recent instance, a contractor had engaged a subcontractor to supply a pipe to be used in a tunnel. When it was laid, the pipe was bedded in with foam concrete. Due to the highly alkaline nature of the concrete, the pipe burst four years after it was laid. This caused extensive damage and loss to Thames Water, which owned the tunnel.
The contractor who laid the pipe settled with Thames Water and sought to recover his losses from the subcontractor who supplied the pipe, on the ground that it was not fit for purpose since it was not resistant to the attack. It was argued that the Sale of Goods Act 1979 created the obligation to supply a pipe that was reasonably fit for the purpose.
The problem with the contractor’s argument was that the pipe supplied by the subcontractor was specified to be fit for the purpose of carrying water. It could not be shown that any representation had been made that the pipe was fit for use in foam concrete nor, indeed, that the subcontractor knew that it was to be so used. Nor was there any reason why the subcontractor should have known the likely effect of the alkaline environment on the pipe.
Had the contractor specified that the pipe must work in a particular environment, the argument might have succeeded. However, since the pipe was fit for the purpose specified, the claim failed.
“This case illustrates the critical importance of making sure your contracts are carefully worded and include any necessary conditions,” says <<CONTACT DETAILS>>.
Contact us for assistance with your contractual negotiations.
Partner Note
J Murphy & Sons Ltd. v Johnston Precast Ltd. [2008] EWHC 3024 (TCC). See
Landlord’s Rights Preserved Despite Accepting Payment From Tenant
One of the remedies available to a landlord when rent is not paid is to forfeit the lease and to take possession of the premises. However, if this course of action is intended, it should be remembered that acceptance of rent acts to waive the landlord’s right to forfeit the lease.
In a recent case, a landlord applied for a bankruptcy petition against one of its tenants when it made a statutory demand for rent due and this remained unpaid. The landlord also became aware of breaches of the lease covenants by the tenant. The bankruptcy hearing was adjourned.
The tenant paid £10,000 prior to the new date for the bankruptcy hearing. This sum exceeded the sum due under the statutory demand by more than £6,000, but new sums had become due. The landlord banked the cheque, but returned the excess over the sum that was subject to the bankruptcy hearing. It informed the tenant that the partial acceptance of the sum due could not be regarded as a waiver of the landlord’s right to forfeit the lease. Following the dismissal of the bankruptcy petition, the tenant sent the landlord another cheque for £18,750, which was returned.
The tenant argued that the acceptance of the first cheque occurred when the landlord had knowledge of the tenant’s breaches of the lease. This meant that the landlord had waived its right to forfeit the lease and that acceptance of the cheque constituted acceptance of rent, even though the balance had been returned.
The Court of Appeal rejected these arguments. It was impossible for the landlord to obtain settlement of the debt due under the statutory demand without cashing the first cheque. It had returned the balance of that cheque to the tenant. In the Court’s view, the landlord had commenced action before it was aware of the breaches of the lease.
In this case, the landlord’s actions justified its argument that it had not accepted the cheque as rent. The case illustrates the importance of taking advice early on in such cases. It would have been easy for the landlord to make the error of retaining the balance of the cheque and/or accepting the second cheque, in which case the right of forfeit would probably have been lost.
If you are having problems relating to a lease, we can advise you on the appropriate steps to take.
Partner Note
Osibanjo and anor v Seahive Investments Ltd. [2008] EWCA Civ 128. See
Mixed Use is a Matter of Fact
Changes of use within the same ‘use class’ do not normally require full planning permission to be granted.Accordingly, when a mixed-use development is proposed, it is important to ascertain which use will be the primary use.
A recent dispute concerned a site which had originally been given planning permission under category A1, which covers retail premises, for use as a car dealership with an attached workshop. The owner applied for a lawful development certificate to change the use of the workshop to a retail licensed sex shop.
Permission was refused by the planning inspector, who decided that as a matter of fact the original permission was for mixed use and that the workshop was ancillary to the trade of motor car sales.
The claimant argued that any other activity was allowed provided it was in conjunction with the main use of the site and was ancillary to it.
The decision was appealed in court and the planning inspector’s decision was upheld.
Partner Note
Cocktails Ltd. v Secretary of State for Communities and Local Government [2008] All ER (D) 102 (Nov).
Motor dealership premises are categorised sui generis in the Use Classes Order.
Options – Careful With Your Drafting
When an option to acquire land is being negotiated, it is important to be careful with the drafting of the option agreement, lest you create unintended consequences.
A recent case illustrates how problems can arise if the wording of the agreement fails to be comprehensive. An option to purchase land was granted to a developer. The developer intended to obtain planning permission to develop the land and, if the application was granted, was expected to exercise the option to purchase the land.
The option agreement required the developer to apply for planning permission for 20 apartments and gave it the right to buy for either £875,000 or £925,000, depending on the decision of the planners as to whether over ground or below ground parking was allowed.
The developer paid £1 for the option, which lasted for six months. The term of the option was to be extended if the developer’s planning application was refused and the developer appealed against the decision or if planning permission was granted on terms not acceptable to the developer. The problem was that in such circumstances the option ran until three months after the determination of the appeal against the planning decision, but did not have a long-stop termination date. The statutory limitation on options is 21 years.
The developer did not obtain the planning permission sought and, shortly before the option agreement expired, it appealed against the refusal. The developer subsequently asked the planning authority to put its appeal into abeyance, with the effect that the option was then left ‘live’.
More than a year later, the developer submitted various other planning applications with regard to the same land, one of which was granted. It then sought to exercise its right to buy under the option and the landowner refused, arguing that there was an implicit term in the agreement that the developer would use ‘best endeavours’ to obtain planning permission and that this had not been done because the permission had not been pursued for a year.
The landowner lost.
“Options present significant problems and tightly drafted option agreements are a necessity,” says <<CONTACT DETAILS>>. “One particular problem which can arise if you are not careful is that if the timing of the receipt for the option is out of your control, this can create tax or other problems and the presence of an option can cause problems when financing is sought using the land as security. In general, it is usually to be preferred if the buyer of the option pays a realistic sum up front, as in practical terms that will concentrate their mind on getting the deal done.”
Partner Note
Chantry Estates (South East) Ltd. v Anderson & Anor [2008] EWHC 2457 (Ch). See http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWHC/Ch/2008/2457.html.
Planners on the Prowl
Hearsay has it that the absence of anything new to consider in local planning departments has led to planners going on the prowl looking for planning violations, leading to an upsurge in planning enforcement activity. It is said that in some areas, even minor breaches of planning regulations are being pursued with great zeal.
Where a breach of planning law is suspected, the council can issue a Planning Contravention Notice (PCN), requiring the production of further information regarding the suspected breach. Failure to provide the information requested can lead to a fine.
The PCN is likely to be followed by an Enforcement Notice (EN), which sets out the breach and the steps that it is necessary to take in order to rectify it. An appeal against an EN must be made within 28 days. If the council believes a planning condition has been breached, it will issue a Breach of Condition Notice (BCN) requiring you to rectify the stated breach. Failure to do so will make you subject to a fine. There is no appeal against a BCN.
In serious cases, a Stop Notice (SN) may be issued. This requires an immediate cessation of the breach of the planning law. Short of commencing a High Court action, a SN cannot be appealed and the fines for failing to adhere to one can be considerable.
As the above makes clear, planning officers have considerable powers and their decisions can have a major impact on a business. If you find yourself facing enquiries from your local planners, contact <<CONTACT DETAILS>> for advice as soon as possible.
Planning – What is a Material Operation?
Planning permissions granted do not have infinite duration and, to avoid the lapse of the permission, it is necessary to commence development work (a ‘material operation’ in the terms used in the Town and Country Planning Act 1990) within the time limit set down. Whether there has been a material operation or not will be decided as a matter of fact and has been the subject of considerable argument in the courts over the years.
A recent case gave guidance on the meaning of ‘material operation’. A developer obtained planning permission for a hotel and community and leisure facilities, together with the related infrastructure. The permission was granted in 1993 and would lapse in January 2004 unless material development had commenced. By the time the lapse date had arrived, the only works carried out by the developer had been the partial creation of an access road using a process which forms a basis for a permanent road surface. This was not wholly consistent with the road permitted under the planning permission. Further work would be needed to make the access road comply with the terms specified in the permission.
In spite of the fact that the road was only partially compliant with the specification, the court ruled that it was a material operation for the purposes of keeping the planning permission alive.
Says <<CONTACT DETAILS>>, “In the current economic environment, many developers may wish to reduce their activities. However, it is important to consider the possible loss due to the lapse of planning permissions if material development is not undertaken in time.”
Contact us for advice on all property law matters.
Partner Note
R (on the application of Brent LBC) v Secretary of State for Communities and Local Government and Ashia Centur Ltd. [2008] EWHC 1991.
Public Interest is Overriding Concern in Planning
A developer which revised a plan for a housing development and then found the revised plan too expensive was left to rue the decision after the court ruled that despite the fact that a planning inspector’s comments about the viability of the new plan were ‘speculation’, his conclusion that the revised plan would not benefit the public could not be interfered with.
The case arose after the developer obtained planning permission for residential and related development on a brownfield site. The permission required the development to be carried out in accordance with a master plan approved by the local authority. The master plan prohibited development within a ‘cordon sanitaire’ around a sewage plant in the area.
The developer subsequently applied for permission to build 160 houses within that area, having done a deal to relocate the sewage plant. However, moving the sewage plant proved to be too expensive so the developer then proposed to build some of the houses within the cordon sanitaire and the remainder on an adjacent greenfield site.
Planning permission was refused. That decision was appealed by the developer and on appeal the planning inspector considered that there were no special reasons to allow the revised scheme. The inspector also considered that the developer should have taken into account the additional cost of relocating the sewage plant and that the developer’s scheme was not the only one which was viable. The developer appealed again.
The High Court found the inspector’s reasoning flawed as regards the viability of the scheme. However, that did not gainsay the inspector’s decision that the revised scheme as a whole did not comply with the master plan. Neither was his conclusion invalid that the proposed development could not be said to be of benefit to the public. The conclusion that no special reason existed to allow the proposed development was correct and the permission for the revised scheme was denied.
“It is normally better to get planning applications right the first time, rather than to rely on getting a revised planning application approved,” says <<CONTACT DETAILS>>.
Partner Note
Enodis v Secretary of State for Communities and Local Government [2008] EWHC 2591.
Rescission of Contract – Use it or Lose it!
The Standard Conditions of Sale of Leasehold contain (at 8.3.3) conditions under which the contract for sale can be rescinded if one party does not complete at the time specified in the contract. The purpose of the condition is to allow both parties to consider their positions in the event that the landlord of the premises appears likely to refuse to agree the transfer of the lease to the proposed purchaser.
Under the standard condition, in such circumstances the buyer has a right to demand the return of their deposit. However, this right must be exercised promptly. In a recent case, a purchaser failed to give a notice rescinding such a contract either within three days before the completion date or within a reasonable period of time thereafter.
In the court’s view, in such circumstances the vendor had been entitled to continue to work on the basis that the contract would be completed. It ruled that the purchaser’s deposit was not refundable and made an order that the purchaser complete the purchase.
Partner Note
Alchemy Estates Ltd. v Aston and another.
Reported in The Times, 3 February 2009.
SDLT – Lest We Forget
Tenants who undertook leases after 1 December 2003, which was when Stamp Duty Land Tax (SDLT) came into effect, are reminded that it may be necessary for them to submit a new SDLT return and the result may be additional SDLT to pay or a refund of SDLT.
Returns will be necessary when the lease has been subject to a rent review within the first five years and/or contained a contingency which makes the rent uncertain – as is the case in leases with an element of turnover rent.
If your lease contains such a clause, the original SDLT return will have been an estimated return based on the expected rent. Where that rent has now become certain, a revised return will be required.
Partner Note
For further information, see HMRC’s guidance at http://www.hmrc.gov.uk/so/legislation.htm.
Service Charges – Wording Critical
Disputes between landlords and tenants over what is and what is not proper to include in the service charges paid by the tenants are commonplace. As in all instances, the wording of the tenancy agreement is crucial, as a recent case illustrates.
It involved leading high street retailer Boots and the charges made by the landlord of Manchester’s Trafford Centre.
The landlord had laid on various entertainments and attractions in the Centre and sought to recoup the cost of these from its tenants. In addition, the landlord provided a ‘Sky Wall’, which gave information about the Centre and on which the tenants could advertise directly for a fee. The advertising revenue from the Sky Wall was set against the service charge levied on the tenants generally.
Boots argued that these expenses constituted ‘promotion’. This was significant because under the service charge agreement, half of the expense of promotion was to be borne by the landlord and the charge for promotion was also limited to 10 per cent of the total service charge.
The definition of promotion included the phrase ‘…advertising and other forms of promotion…intended to bring additional custom to the Centre…’. The court ruled that this meant that promotion had to be intended to be a form of promotion for the Centre and in addition had to be intended to bring additional custom to it. Merely being a benefit or service to the Centre was not enough to qualify.
In the court’s view, the attractions were not a promotion of the Centre and therefore their entire cost was properly part of the service charge to tenants. The Sky Wall, however, was in part a form of promotion that was intended to bring additional business to the Centre. So, to that extent, its use constituted promotion and the cost was in part to be borne by the landlord.
Partner Note
See the summary at
Tenancies and Insolvency – Landlords Take Note
Businesses in financial difficulties are increasingly seeking ways of ridding themselves of extra costs and, in many cases, premises let in more promising economic times are viewed as a substantial and avoidable liability, especially for businesses which have expanded too quickly.
One of the more common ways for a business to be restructured on a more profitable basis is to arrange to take the profitable parts into a new business by doing a ‘pre-pack’ administration – a procedure whereby the business, or part of it, is transferred to a new entity. Prior to this, the business will be placed into administration, which imposes a moratorium on legal processes, such as the landlord’s right to make the lease forfeit by peaceable re-entry.
The argument for pre-packs is that they maximise the chance of salvaging the business and preserving employment. On the downside, the creditors of the original business are often left nursing losses.
From the landlord’s perspective, a tenant which undertakes a pre-pack may well leave the rented unit behind if it is uneconomic to retain it, thus leaving the landlord facing the prospect of finding a new tenant and a loss of rental income.
If the new business wishes to retain the unit, there may be scope for the landlord to negotiate with the new occupier with regard to arrears of rent as well as adherence to the lease covenants.
The good news for landlords is that in most cases they should be entitled to retain a rent deposit paid by a tenant that goes into administration.
We can help you negotiate with tenants in difficulties and administrators. Contact <<CONTACT DETAILS>> for advice.
Partner Note
There is a discussion of the issues and recent case law in New Law Journal, 2 and 9 January 2009 at pages 18 and 19. See also R (Cukovra Finance) v HM Treasury [2008] EWHC 2567.
Tenancy Deposit Protection Schemes – Landlords Beware
If you are a landlord it is vital that you are aware of the requirement, introduced in April 2007, that all deposits (for rent up to £25,000 per annum) taken by landlords and letting agents for Assured Shorthold Tenancies in England and Wales must be protected by a tenancy deposit protection scheme.
There are two types of tenancy deposit protection scheme available for landlords and letting agents. These are insurance-based schemes and custodial schemes. All schemes provide a free dispute resolution service.
Landlords must be a member of one of the schemes currently in existence. Within 14 days of receiving the deposit, the landlord must provide the tenant with details of how the deposit is being protected including:
- the contact details of the tenancy deposit scheme;
- the landlord’s or agent’s contact details;
- how to apply for the release of the deposit;
- information explaining the purpose of the deposit; and
- what to do if there is a dispute about the deposit.
If a landlord or letting agent does not protect a tenant’s deposit then they will have to pay them three times the deposit sum in compensation.
The new rules were introduced to counteract the actions of rogue landlords who unfairly withheld deposits at the end of a tenancy. Figures produced by mydeposits.co.uk show that since their introduction, 94 per cent of tenants in London who have appealed against a landlord’s decision to keep their deposit after the tenancy has ended have won back a share of their deposit.
The requirement to belong to a tenancy deposit scheme operates to the benefit of both landlords and tenants. From the landlord’s perspective, where damage is done to their property, the scheme allows the appropriate amount to be deducted from the tenant’s deposit as compensation. It is important, however, to make sure that an inventory is carried out at the beginning of the tenancy and once the tenancy is concluded, otherwise there is no proof of the damage claimed and the adjudicator is likely to find in favour of the tenant.
From the tenant’s perspective, the scheme protects them against the actions of unscrupulous landlords by making sure that part or all of their deposit is returned to them, depending on the circumstances.
For further details on the types of scheme and those available, see http://www.direct.gov.uk/en/TenancyDeposit/DG_066391.
Partner Note
The statistic regarding tenants in London who have retrieved all or part of their deposit comes from mydeposits.co.uk, a Government-approved tenancy protection scheme. See http://www.mydeposits.co.uk.
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The Safety of Gas Appliances – Landlady Prosecuted
The Health and Safety Executive (HSE) has issued a warning to landlords to make sure that gas appliances are maintained in a safe condition.
The call came following the successful prosecution of a landlady who had failed to ensure the safety of gas appliances in one of her properties. Aruna Pravin Kukadia pleaded guilty to a breach of Regulation 36(3) of the Gas Safety (Installation and Use) Regulations 1998. The Regulations set out the requirements for landlords to inspect and service gas installations on an annual basis. Mrs Kukadia was fined £5,000 with costs of £3,719.
Regulation 36(3) imposes a duty to ensure that each gas appliance and flue is checked for safety within twelve months of being installed and at intervals of not more than twelve months since the last safety check was carried out.
In addition, landlords must keep a record to show that the inspection has been made and retain this for a period of two years. There are specific requirements laid down in the Regulations regarding the information that must be provided in this written record. This includes the registration number of the individual carrying out the inspection or of that person’s employer. Registration must be with a body approved by the HSE for the purposes of the Regulations.
Health and Safety inspector Andrew Verrall-Withers said, “I hope this case sends a clear message to landlords who may be tempted to cut back on safety checks thinking that nothing will be done unless someone is harmed.”
Further information can be found in the HSE guidance booklet, ‘A Guide to Landlords’ Duties: Gas Safety (Installation and Use) Regulations 1998’ at http://www.hse.gov.uk/pubns/indg285.pdf.
What is Rent? Farmers and Their Landlords Take Note
It is by no means common for a question as simple as ‘what is rent?’ (or, as more exactly put by Mr Justice Lewison, “What counts as ‘rent’ for the purposes of a notice to pay given under Schedule 2 of the Agricultural Holdings Act 1986 (AHA) as a prelude to the service of an incontestable notice to quit?”) to come before the courts. However, a recent case dealt with this point in the context of an agricultural tenant’s failure to pay rent demanded by the landlord. The landlord had opted to tax his land, making the rent payable carry a charge to VAT at the standard rate.
At issue was a notice demanding rent stated as being ‘£6,047.94 inclusive of VAT’. For such a notice to be valid, it must be for rent alone, not for any additional charges. The tenant argued that VAT is not rent and the notice was therefore invalid. The court rejected that argument, ruling that VAT was part of the rent payable. However, this brought a different question into play. If VAT is part of the rent, when the VAT rate changes, is that a variation in the rent? This is a significant issue as any change in the rent starts afresh the three-year period set out by the AHA during which the rent cannot be referred to an arbitrator to be reassessed.
With the VAT rate scheduled to change again in 2010, any lease on opted land will not, it seems, be subject to arbitration until 2013.
Agricultural landlords and tenants take note.
Partner Note
Mason v Boscawen [2008] EWHC 3100 (Ch). See
What You Do Matters
The saying that ‘if it walks like a duck and quacks like a duck, it is a duck’ is true in contract law also, because if you behave in accordance with a contract, the court will be inclined to come to the conclusion that the contract is operative, even if it has not been signed.
This was borne out by a decision of the Technology and Construction Court in a recent case in which a subcontractor was sued for causing delay to a building project and where the (unsigned) contract had a clause requiring that the contractor be compensated should this occur.
The subcontractor argued that there was no contract, because none had been signed, even though there had been a copious exchange of correspondence setting out terms etc. The Court concluded, however, that there had been the offer and acceptance necessary to create contractual relations and the fact that the subcontractor had commenced work was further evidence that a contract had come into being.
Says <<CONTACT DETAILS>>, “It can be risky to start to fulfil a contract before you have finalised its terms. We can help you to protect your position while negotiations are ongoing and to ensure you enter into a contract with your legal risks controlled.”
Partner Note
A E Yates Trenchless Solutions Ltd. v Black & Veatch Ltd. [2008] EWHC 3183 (TCC). See
When Your Tenant Goes Bust
More and more landlords are likely to be having to deal with the administrators appointed to manage the businesses of insolvent tenants.
A recent decision of the Court of Appeal will be unwelcome to landlords as it led the Court to conclude that mere loss of a ‘bargaining chip’ by the landlord was insufficient reason for it to be given permission to terminate a licence to occupy premises.
The case dealt with a corporate tenant that had a lease over a storage facility which was used to store many millions of pounds worth of goods. The lease had more then 20 years to run at a rent in excess of £1 million per year. The tenant went into administration and a buyer was found for the business under a ‘pre-pack’ arrangement. The administrators gave the buyers of the business a licence to occupy the business premises to enable the business to continue so the debts due to the company in administration could be collected. The licence fee was the same sum as the rent but was paid to the administrators each month in arrears rather than quarterly in advance. The administrators agreed to pass on the licence fees to the landlord in satisfaction of the rent. The landlord’s loss therefore was limited to the loss of interest on the rents received and the loss of security of future rents because the lease had been replaced by a licence.
The property was the main asset of the landlord, which wished to terminate the arrangement in order to put pressure on the buyer of the business to take a formal assignment of the lease. It needed the permission of the administrators or of the court to take legal proceedings against them (which is normal practice when a company is in administration). The decision to allow proceedings to be taken against a company in administration is at the discretion of the court and to obtain permission, the landlord had to persuade the court that it would be inequitable for permission to take proceedings not to be granted. This is a matter of balancing the loss suffered by the landlord if permission to commence proceedings is refused with the loss suffered by the other creditors if permission is granted.
It was argued that had the short-term licence not been allowed to continue, the tenant company would have had to have been put into liquidation, with the result that the creditors’ interests generally would have been prejudiced and the landlord may not have received some of the rent due.
The Court rejected the landlord’s application and ruled that the landlord did not have an absolute legal entitlement to be paid contractual rent and interest as an administration expense.
This decision will not be welcome to landlords, who may well find their position undermined after a pre-pack administration has been completed. Where the landlord’s borrowings against their let property are substantial, the loss of a secure lease, even if replaced by a similar income on licence, could cause a breach of their borrowing covenants, which could have very unhappy ramifications. It has been reported that the landlord in this case has now followed its tenant into administration.
Partner Note
Innovate Logistics Ltd. v Sunberry Properties Ltd. 2008 EWCA Civ 1321.