Avoiding the End of Lease Blues
With the recession beginning to bite, many occupiers of rented property are looking to move to less expensive premises or reduce the space they currently occupy.
If you are thinking along these lines, here are some tips which may help you determine your best course of action.
Read your lease. It is surprising how many times problems arise because the tenant isn’t familiar with the lease. For example, most quarterly leases with a notice period require the tenant to pay the rent until the end of the subsequent quarter. Failing to give notice at the right time can be an expensive exercise.
Check the position on dilapidations. Hopefully you will have made a detailed schedule of the condition of the premises when you moved in. Agree with the landlord early on in the proceedings the dilapidations for which you are responsible – it may well be cheaper for you to make any necessary repairs than for the landlord to have them done and for you to then foot the bill.
Check the position as regards payment for utilities, rates and so on. Especially, make sure you check the position as regards insurance.
Remember that your landlord is likely to be a realist and may well prefer you (a known, good tenant) to stay in occupation at a reduced rent than for the premises to be unlet or let to a tenant of unknown quality. There may well be room for negotiation if you would really rather remain in situ at a lower rent than vacate the premises.
If you do move, make sure that you are not breaking your contract of employment with your employees (a modern contract should obviate this issue, but it can happen).
If you are assigning your lease, check the position as regards the guarantee of the incoming tenant’s obligations. This can operate as a ‘double whammy’ as not only can you find yourself with an unexpected liability if the new tenant defaults, but your bank may well want to keep your account on a tighter reign while the potential liability hangs over you.
Moving premises is a serious business and should not be undertaken without the benefit of professional advice. Contact <<CONTACT DETAILS>> for individual advice on this matter.
Construction Insurance – Case Muddies Position
In contracts for construction works it is common for there to be indemnities against loss, given to the employer by the contractor, and also for there to be agreement as to what sort of insurance cover must be put in place. This is normally done by taking out what is called ‘joint names’ insurance. Problems can arise when there is an event which leads to a dispute over whether a loss to the employer is to be compensated by an insurance claim or by a claim against the contractor.
A recent case illustrating this issue involved the installation of a sprinkler system, by a company called Tyco, at a plant owned by car manufacturer Rolls-Royce. In the contract for the works, Tyco agreed to indemnify Rolls-Royce for any losses it suffered as a result of any negligent act committed by Tyco. The contract also required Rolls-Royce to maintain a joint names insurance policy which covered specified perils. These included losses due to water damage and flooding. Rolls-Royce failed to take out the insurance specified.
When one of the pipes in the sprinkler system burst, water damage occurred. Rolls-Royce claimed for its losses, which exceeded £400,000, from Tyco. Tyco refused to pay on the ground that the loss was one for which Rolls-Royce should have claimed on its insurance policy.
The case ended up in the Court of Appeal.
The Court found that the specific wording of the policy that Rolls-Royce should have taken out but did not was such that it would not have covered the actual loss suffered. In the words of LJ Rix, the relevant clause was “not intended to give Tyco or any individual contractor separate liability insurance in respect of the existing structures outside the area of its own works.”
Interestingly, LJ Rix, when commenting on the case, offered his opinion that the leading case on the matter (CRS v Taylor Young) could not be interpreted as meaning that a case in negligence cannot be brought by an employer against a contractor with regard to a risk with which the employer was contracted to deal by taking out insurance. In other words, in his view Rolls-Royce might still have been able to take their case against Tyco even if they had taken out an insurance policy that did cover the loss suffered.
The moral for all those involved in construction contracts is to make sure that the contract and any ancillary insurances are reviewed carefully to make sure that the appropriate risks are covered. It is especially important to ensure that the risks to the works and to the existing structures are appropriately dealt with. <<CONTACT DETAILS>> can advise you on all construction contract and related matters.
Partner Note
Tyco Fire & Integrated Solutions (UK) Ltd. v Rolls-Royce Motor Cars Ltd. [2008] EWCA Civ 286. See http://www.bailii.org/ew/cases/EWCA/Civ/2008/286.html.
Contractor and Employer Need Certainty
Construction contracts usually provide for payments to be made in stages, with the amount payable being based on the amount of work certified as complete at the appropriate time. Where project milestones are not met, the contract will normally provide that extensions of time can be given, which can affect the amount of payment to be made under an interim certificate of work done.
In a recent case, a contractor’s work was behind schedule and the architect supervising the project issued a certificate of non-completion. A notice of intention to withhold payment was issued by the contractor’s employereight days before the relevant stage payment was due and three days later the reduced payment was made. The sum deducted was £61,000 and the payment made was £126,000. Three days after the payment was made (i.e. two days before the final date for payment of the stage payment) the architect issued a retrospective notice of extension, which would have made the appropriate deduction only £12,000. The contractor carrying out the work argued that the stage payment should be increased by £49,000 as a result. The contractor’s employer paid the further £49,000, but only after the contractor had issued a default notice. The contractor considered this action to have brought the contract to an end as the employer had failed to pay the full sum, certified under the interim certificate of work done, by the due date.
The House of Lords was faced with the question of whether or not the retrospectively issued interim certificate had affected the employer’s right to rely on the previously issued certificate of non-completion.
The Lords ruled that a distinction must be made between the factual basis for the payment and the legal basis. The fact that a subsequent event had changed the factual basis under which the deduction was made did not change the legal basis under which the employer made the payment. Unless the contract specifically stated otherwise, the employer was not required to make the further payment of £49,000 immediately once the architect had granted an extension of time. The contract anticipated that shortfalls would be picked up in later certificates. To decide otherwise would make both parties to the contract subject to an unacceptable amount of uncertainty since neither would be able to rely on a notice as a conclusive statement of the position.
Says <<CONTACT NAME>>, “Construction contracts can present numerous and sometimes formidable issues as they progress. Both the contractor and employer need as much certainty as possible. We can assist in the negotiation of any construction contract and in the drafting of any special contractual terms which may be required.”
Partner Note
Reinwood v L Brown & Sons Ltd. UKHL 12; WLR (D) 77 http://www.lawreports.co.uk/WLRD/2008/HLPC/mar0.1.htm.
Exclusion Clause Victory for Landlord
Some months ago, a tenant who won a case against its landlord using the unfair contract terms legislation seemed to have given tenants whose leases contain unfair exclusion clauses improved weaponry in such disputes. In the case in point, the tenant was left with offices which were so hot as to be unusable because the landlord had failed to repair the air conditioning over a lengthy period. Because of the problems, the tenant withheld its payments and then vacated the premises. The landlord sued for the sums due and the tenant counterclaimed for its losses and expenses connected with its relocation.
The landlord’s argument was that it had an exclusion clause in its agreement with the tenant which excluded losses arising to the tenant for ‘loss of business, loss of profits…and consequential loss’. The agreement also advised the tenant to insure itself against such eventualities and contained a limitation clause, which capped any claim at an absolute level of £50,000. The tenant argued that this clause was unfair under the Unfair Contract Terms Act 1977, because it was not reasonable. The tenant won in the first instance, because the judge concluded that the clause left the tenant with no remedy for its losses and was therefore unreasonable. The landlord appealed.
The Court of Appeal considered the issue and found that the landlord had been negligent in not repairing the air conditioning. However, it did not agree that the exclusion clause prevented the tenant from obtaining a remedy for its loss. The remedy was a claim for the difference between the value of services the landlord had contracted to provide and those actually provided. The exclusion clause was therefore reasonable. This decision will be taken as evidence that demonstrating that such a clause is reasonable may not be as difficult as had previously been thought.
One interesting aspect of the decision was that the limitation clause was regarded as severable from the rest of the exclusion clause. This means that the failure of the exclusion clause would not have caused the limitation clause to fail.
Partner Note
Regus (UK) Ltd. v Epcot Solutions Ltd. [2008] EWCA Civ 361. See
This case was always going to go to appeal, bearing in mind that the landlord presumably has the same or similar clauses in hundreds of agreements.
Unfair Contract Terms Act 1977, see http://www.statutelaw.gov.uk/content.aspx?LegType=All+Legislation&searchEnacted=0&extentMatchOnly=0&confersPower=0&blanketAmendment=0&sortAlpha=0&PageNumber=0&NavFrom=0&parentActiveTextDocId=224526&ActiveTextDocId=224526&filesize=138536.
Exclusions Exclude, Rules Court
Two recent cases reaffirm the wisdom of giving careful consideration to the effects of exclusion clauses in insurance policies.
One involved a fire protection system that was ineffective when a fire broke out, causing loss to the owners of the building in which it was installed. They sued the engineer who installed the system, who settled their claim and claimed on his insurance policy. The insurers refused the claim because the policy contained an exclusion clause which excluded a claim which arose as a result of the failure of the apparatus ‘to perform its intended function’. The engineer went to court to force them to pay.
The court rejected the engineer’s claim, holding that the words were clear in their meaning. Applying normal principles, the purpose of an exclusion clause is to exclude the stated perils. In this case, the loss was not due to the equipment being defective (in which case the policy would have covered the claim) but because it failed to perform its intended function of putting out the fire, an exclusion clearly included in the policy by the insurer for good commercial reasons.
In the second case, a clause in an insurance policy which included the requirement that the premises were attended by at least one responsible person when not protected by the intruder alarm system was sufficient to exclude a claim for losses due to theft when the responsible person (the managing director of the claimant company) left the premises because he felt unsafe. Although the policy would have covered the loss had he been under the actual threat of violence, in the absence of a specific threat the exclusion clause applied.
Says <<CONTACT DETAILS>>, “Exclusion clauses are put into policies by the insurer with the specific intention of reducing the insurer’s risk under the policy. Such clauses can have a much wider effect than one might think. We can advise you on the proper construction of contractual clauses including those applicable to your insurance policies.”
Partner Note
John Reilly v National Insurance and Guarantee Corp Ltd. [2008] EWHC 722 (Comm).
Anders & Kern UK Ltd. v CGU Insurance PLC (t/a Norwich Union Insurance) [2007] EWHC 377. See
Guidance on Letters of Intent
Letters of intent are widely used in the building trade, because it is normal for both developer and contractor to wish to make progress on a building project without having to wait until the formal contractual arrangements have been fully agreed. However, letters of intent are fraught with possible pitfalls and have led to a procession of cases coming before the courts. The best way to ensure their successful use is to take advice to ensure the drafting of any documentation is as tight as possible.
Following yet another recent case dealing with a dispute (this time involving more than £1 million) over work done under letters of intent, the court has issued guidance regarding their use.
The recommendations are that any letter should:
- state clearly whether it is intended to be binding or non-binding;
- state what the rights of the respective parties are in the event that a formal agreement is not subsequently reached. In particular, care should be taken to ensure that the method of dealing with any dispute and the effects of termination are clearly set out;
- set out whether it is intended to constitute a contract under the Construction Act (and if it is not so intended, care should be taken that the wording does not unintentionally create such a contract); and
- set out any financial, time or other limits which apply to the work done by the contractor under the letter of intent.
We can assist you in making sure that your letters of intent create only the rights and obligations that you intend.
Contact <<CONTACT DETAILS>> for advice on any commercial property matter.
Partner Note
Felton Construction Ltd. v Liverpool City Council [2007] EWHC 3049 (TCC).
Guidance on Letters of Intent
Letters of intent are widely used in the building trade, because it is normal for both developer and contractor to wish to make progress on a building project without having to wait until the formal contractual arrangements have been fully agreed. However, letters of intent are fraught with possible pitfalls and have led to a procession of cases coming before the courts. The best way to ensure their successful use is to take advice to ensure the drafting of any documentation is as tight as possible.
Following yet another recent case dealing with a dispute (this time involving more than £1 million) over work done under letters of intent, the court has issued guidance regarding their use.
The recommendations are that any letter should:
- state clearly whether it is intended to be binding or non-binding;
- state what the rights of the respective parties are in the event that a formal agreement is not subsequently reached. In particular, care should be taken to ensure that the method of dealing with any dispute and the effects of termination are clearly set out;
- set out whether it is intended to constitute a contract under the Construction Act (and if it is not so intended, care should be taken that the wording does not unintentionally create such a contract); and
- set out any financial, time or other limits which apply to the work done by the contractor under the letter of intent.
We can assist you in making sure that your letters of intent create only the rights and obligations that you intend.
Contact <<CONTACT DETAILS>> for advice on any commercial property matter.
Partner Note
Felton Construction Ltd. v Liverpool City Council [2007] EWHC 3049 (TCC).
Housing Officers Need Not Investigate
When a couple sought to be treated as homeless by their local council, following their eviction for non-payment of rent, they claimed that the council’s decision to regard them as intentionally homeless was unfair because it had not investigated the reason for their homelessness.
The issue arose because the eviction for non-payment was contested by the couple on the basis that they believed that their rent had been increased unlawfully. The High Court considered the issue and ruled that it was not incumbent on a housing officer to go behind the decision leading to the possession order that led to the eviction. The tenants had not applied for the order to be set aside at the time, which would be the normal course where they considered that it had been made on an invalid basis.
The Court of Appeal upheld this decision, but would not go so far as to say that there are no circumstances in which a housing officer would be exempt from having to consider the grounds under which a possession order was granted.
Says <<CONTACT DETAILS>>, “Tenants who are evicted should not rely on their claim that the eviction was made on the wrong basis being treated sympathetically in the absence of their having followed the correct procedures at the outset. A housing officer whose decisions are based on the facts available to him at the time will not normally have to make further investigations to justify his decision.”
Partner Note
Green and another v London Borough of Croydon [2007] EWCA Civ 1367. See
Is Twice the Size Materially Bigger?
One of the bugbears of planning law is that it often contains terms that are not clearly defined and this imprecision provides copious room for argument. Recently, a case came to court to consider the meaning of the term ‘materially larger’ in the context of a planning application.
The case arose when a local authority granted planning permission to demolish an existing house and replace it with one which had a building footprint two and a half times that of the house being demolished and an increase in volumetric terms of four-fold/ a four-fold increase in volumetric terms. It was argued that this was not material because the design of the new house involved the creation of some floor space which was below ground level.
The planners had concluded that the new property would not be ‘materially larger’ than the previous premises.
In the view of the Court of Appeal, whilst a small increase in floor space could be material, it was harder to see how it could be asserted that such a large increase in floor space was not material. The test was ‘was the new property materially larger?’ and not ‘did it make a material impact?’. The intention was to ensure that the new building was similar in scale to the existing one. The local authority had misinterpreted the policy. The planning application was correctly refused. By whom? – the planners agreed to it?
Partner Note
R [on the application of Heath & Hampstead Society] v Vlachos, Vlachos and Camden Borough Council [2008] EWCA Civ 193.
Lords Rule on Limitation Case
There are strict time limits relating to the bringing of claims in tort (where a wrong is committed, the compensation for which is sought in a civil court). These are set out in the Limitation Act of 1980. In general, claims cannot be brought more than three years after the date when the claimant had the right to bring an action and was in possession of the knowledge necessary to do so.
Being in possession of the necessary knowledge is taken to include situations in which the person should have been in possession of the knowledge but failed to acquire it when they could reasonably be expected to have done so from the facts available. This is particularly important in cases in which the damage is latent and not discovered for some time. The idea here is to exclude claims from those who could have acted with reasonable celerity to ascertain the position, but failed to do so. Needless to say, it is an often argued-over area of law.
The issue normally concerns what constitutes ‘knowledge’ for starting the clock running in terms of the time limits for bringing a claim. The House of Lords recently dealt with a case that provides useful guidance in this area.
It involved a company which built an extension to its premises. The foundations of the extension proved to have defects. In 1995, an expansion joint was noted to have widened, but this was not regarded as significant. The situation was monitored for a period and in the absence of any other signs of problems or further significant movement, it was decided not to undertake further investigation, although correspondence continued over the matter for some time. One significant feature was that the defendant structural engineer had sent a letter suggesting only that a mastic sealer on the ground slab of the building should be replaced to indicate whether the movement was continuing. The judge hearing the case in the Technology and Construction Court took this to indicate that the structural engineer did not at that time (it was then 1996) consider the problem to be significant.
Over the years, cracking was noted and the defendant attended the premises, but at no time did he indicate that he considered the movement of the building was significant, although he did say that cracking of the concrete floor slab would be significant. This duly occurred in 2003. Proceedings were commenced in July 2006. These would be statute barred if prior to three years before that date the claimant had the knowledge required, or should have had the knowledge required, to bring an action for damages in respect of the relevant damage. The defendant structural engineer argued that the proceedings were ‘out of time’ and could not be brought.
The ruling of the Court was that the defendant had taken insufficient steps to put the claimant ‘on knowledge’ that there might be a problem with the foundations of the building. Accordingly, the claimant only had sufficient knowledge in 2003 and so the claim was not out of time and could proceed.
Partner Note
Harris Springs Ltd. v Howes [2007] EWHC 3271 (TCC)
Loss of Right to Buy Not Overriding Factor
A recent decision by the Court of Appeal could be bad news for council tenants pursuing their right to buy. When single mother Dawn Benjamin tried to exercise her right to buy the home she grew up in, having acquired the tenancy from her mother, she lost out to overriding rights asserted by Manchester City Council.
The case concerned a six-bedroom property let by the Council on a secure tenancy to Ms Benjamin’s father and mother in 1979. It was occupied by the whole family of seven until 1983, when the father left. Ms Benjamin joined the Army in 1995 and had a successful career until she left in 2003 to care for her mother, who was seriously ill.
In January 2004, Ms Benjamin gave birth to a son and raised him as a single parent. In December that year, her mother died and she, by then the only adult occupant of the property, applied to succeed tothe tenancy. After an initial dispute, the Council accepted the transfer.
However, in July 2005 the Council served notice to gain possession of the property under Schedule 2 of the 1985 Housing Act, on the grounds that the property was more extensive than was reasonably required by the tenant. In August, Ms Benjamin filed a right to buy application under the Act.
The Council’s response was to offer Ms Benjamin a two-bedroom property. Then in October 2005, it issued proceedings for possession of the original property and Ms Benjamin subsequently made a further application under the right to buy provisions of the Act. The case came to court in March 2007, following her application for an order requiring the Council to convey the property to her.
Various alternative properties were offered to Ms Benjamin. However, it was established during the hearing that these were all subject to a pending block transfer of Council properties to a housing association. It was likely that if she took one of these alternative tenancies, she would lose her right to buy. It was further stated that she intended to start fostering and so could make good use of a six-bedroom house.
The judge decided that the Council’s possession claim was not reasonable on the grounds that the alternative properties offered were not suitable – the potential loss of the right to buy being the decisive point.
At appeal, it was held that the judge was wrong to take into account an irrelevant consideration – the transfer of the alternative properties to the housing association. It was felt that, although Ms Benjamin could lose her right to buy, this could not be considered decisive. The court needed to balance the rights of the tenant with the Council’s duty to deploy its housing stock effectively.
On this basis, the Council’s appeal was allowed and the possession order made. Ms Benjamin’s counter-claim was dismissed.
“This decision demonstrates that the right to buy has its limitations and the courts will act to protect the rights of social landlords to manage their housing stock in accordance with their wider social obligations,” says <<CONTACT DETAILS>>.
Partner Note
Manchester City Council v Benjamin [2008] EWCA Civ 189. See
Rates Change May Mean Scenery Change
Now that the top is off the property market, the tops may be about to come off some properties – literally – causing a change to the UK’s industrial scenery reminiscent of the last recession. At issue is the recent change in rate relief on commercial buildings, first announced a year ago.
Previously, unoccupied industrial buildings benefited from 100 per cent relief against non-domestic rates. Other empty commercial buildings were previously exempt from liability to rates for three months and then qualified for a 50 per cent reduction thereafter. On 6 April, the position changed. Now, unoccupied industrial properties have exemption from rates for six months only and non-industrial commercial properties for three months. After the exemption periods, full rates are payable. It has been estimated that approximately 7 per cent of such properties are empty at any time.
The changes, which are anticipated to net the Treasury over £900 million annually, are expected to have several implications for the property market. Some of the UK’s largest commercial property owners are threatening to remove the roofs from properties which remain empty and to advance plans to demolish properties. It is also likely that new developments which are not pre-let will be left incomplete, as shells without roofs. Also, the Royal Institute of Chartered Surveyors has claimed that the changes are likely to lead to increased service charges and dilapidations claims for tenants in developments containing empty properties.
“Given the present state of the property market, the timing of the rates changes could hardly have been worse,” says <<CONTACT DETAILS>>. “An impending rates bill may lead owners of commercial buildings that become vacant to be tempted to accept a lower rent or lower-quality tenant than they would like, as demand for premises falls.”
Partner Note
The changes were euphemistically described as ‘modernisation’ when announced. See http://www.planningportal.gov.uk/england/professionals/en/1115315000058.html.
RICS Comments. See
http://www.rics.org/Practiceareas/Property/Commercial/Taxation/RICSviewemptypropertyraterelief.html.
Rent Payable During Notice Period
The courts often have to deal with disputes over the payment of rent and charges for the period after a tenant has given notice to vacate a let property. A recent case concerned just such an issue.
The circumstances were that premises were occupied under licence, with the licensee paying £450 plus VAT per month. The licence could be determined by either party by giving a month’s notice. After a short period, the licensee and the landlord agreed that the licensee could make a one off payment of £6,000, to cover the VAT inclusive charge for occupancy for the next 12 months. This represented a discount of approximately £25 plus VAT per month.
The licensee emailed the property owner to confirm that during the 12 month period for which the charge was prepaid the property owner’s right to give a month’s notice, as provided for in the licence, would be suspended.
About eight months later, the licensee gave notice to terminate the agreement and claimed the balance of his prepayment back from the landlord.
In court, it was considered that the licensee’s email had only suspended the landlord’s right to terminate the arrangement on a month’s notice, not the occupier’s. Therefore, the balance of the payment was refundable. The landlord appealed to the Court of Appeal.
The Court of Appeal took account of the email, but considered that it must be regarded as preventing either party from exercising the right to terminate the arrangement on a month’s notice. The occupier had secured the right to occupy the property for the full 12 months by making the payment, but could not then demand a refund for leaving the premises earlier, nor could the owner of the property compel him to vacate it before the 12 month period was up.
This ruling is on all fours with the normal position that where notice is given by a tenant, rent is due for the whole rental period during which notice is given, no matter when the property is vacated and in spite of the fact that the lease itself may end before the end of the period for which rent must be paid.
Contact <<CONTACT DETAILS>> for advice on any commercial property matter.
Partner Note
Edstaff v Anglo Overseas Group (Properties) Ltd.
Revival of Secure Tenancy Revives Rights
The Court of Appeal has issued a ruling which will be unwelcome to social landlords that allow tenants in arrears to become ‘tolerated trespassers’, when a possession order is suspended because the tenant is paying off the arrears of rent which led to the order in the first place. However, the ruling will be welcomed by tenants in these circumstances as it means they will not have to recommence the ‘right to buy’ procedure from scratch once they have regularised their position and once again become a ‘normal’ tenant.
The case involved a secure tenant who had a possession order made against her for arrears of rent. She had previously had her application to purchase the property granted by her council landlord. Because of the possession order, she became a tolerated trespasser.
Some time later, she cleared her arrears of rent and claimed that this revived her secure tenancy and with it the right to purchase the property. The council claimed that the secure tenancy had not revived and was successful in the lower court. However, on appeal, the Court of Appeal decided differently.
The Court concluded that once the woman’s tenancy had revived, she had the right to sue for breaches of the landlord’s covenants and that right would include breaches of covenants which occurred during the ‘limbo’ period when the tenant was a tolerated trespasser. Furthermore, the right extended to breaches of covenants which were implied as well as those which were expressly agreed. The right to buy was revived as were the tenant’s other rights in such circumstances.
Partner Note
Islington London Borough Council v Honeygan-Green. Court of Appeal, 22 April 2008. Reported in the Times, 28 April 2008.
Site Waste Management Plans
Construction clients are reminded that the Site Waste Management Plans Regulations 2008 came into force on 6 April 2008. In accordance with these Regulations anyone intending to carry out on one site a construction project with an estimated cost greater than £300,000 must, before work begins, prepare a Site Waste Management Plan (SWMP). SWMPs apply to all aspects of construction work, including preparatory work such as demolition and excavation. They record the amount and type of waste produced on a construction site and how it will be reused, recycled or disposed of.
The aim of the Regulations is to encourage the use of materials and methods of construction that produce the minimum amount of waste, to increase the amount of construction waste that is recovered, reused and recycled, thereby improving materials resource efficiency, and to prevent illegal waste activity by requiring that waste is disposed of appropriately, in accordance with the Waste Management Duty of Care provisions.
The Regulations do not apply to projects planned before 6 April 2008 as long as the construction work began before 1 July 2008.
Guidance and tools to assist in developing and implementing a SWMP can be found at http://www.defra.gov.uk/environment/waste/topics/construction/pdf/swmp-toolkit.pdf.
Partner Note
The Site Waste Management Plans Regulations 2008 can be found at http://www.opsi.gov.uk/si/si2008/uksi_20080314_en_1.
Tolerated Trespasser Cannot Alter Order
When a tenant ceases to have the right to remain in a property (normally because of the expiry of the lease or because of an order for possession in favour of the landlord) but is allowed to continue to occupy it, they are what is called a ‘tolerated trespasser’. Normally in such cases, as long as the rent is being paid, the landlord will permit the tolerated trespasser to remain in the premises.
Recently, a case arose which concerned the right of a tolerated trespasser to revise an order of the court made with regard to his tenancy. A tenant of Shepherd’s Bush Housing Association had fallen into arrears with his rent by over £2,000 and in August 1997 the Association obtained a possession order. This was suspended in 2000 on the condition that the arrears of rent were cleared by the payment of regular instalments. The rent arrears had been reduced to about £1,400 when the Housing Association issued proceedings against the tenant for damages for disrepair. The tenant claimed that because he had failed to comply with the terms of the suspended possession order, he was no longer a tenant and the Housing Association could not therefore claim damages for disrepair. The rent arrears were paid off in January 2006 by payment of a lump sum and the tenant applied to revive his statutory tenancy. In February 2006, the disrepair claim was adjourned to allow the application to revive the statutory tenancy to be considered.
The Court of Appeal considered that in dealing with cases such as this, the respective interests of the landlord and the tenant had to be balanced against one another. In such circumstances, the receipt by the landlord of regular rent payments would be a relatively important factor. The tenant wished to have the order varied so that settling arrears by way of the payment of lump sumswould be acceptable. However, this was not what the order specified and that was significant. The tenant’s case was therefore rejected. An argument that the tenant’s human rights would be infringed if the proposed alteration were not allowed was also not accepted.
In his ruling, Lord Justice Pill commented, “Nothing has rendered the August 1997 order misconceived or inappropriate. No unforeseen facts or considerations have emerged. It is an attempt to rewrite a valid order.” He considered that the Court was not permitted by its procedural rules to do so.
The outcome of this case will come as a relief to social landlords.
Partner Note
Shepherds Bush Housing Association v Porter [2008] EWCA Civ 196.
Tolerated Trespassers Intolerable?
A Government amendment to the Housing and Regeneration Bill will see the end of the ‘tolerated trespasser’ and will mean that a tenancy is not ended until the tenant is actually evicted from premises on the enforcement of an order for possession by the landlord.
The term ‘tolerated trespasser’ has arisen in the last decade to describe tenants whose tenancies have been brought to an end after the issue of a possession order, but who continue to pay rent and who have not actually been evicted.
The status of tolerated trespassers and the basis of their occupation of their properties has caused much debate in the courts, particularly with regard to tolerated trespassers who sought to preserve their right to buy the properties of which they had been legal tenants. Many went to court to have the possession orders made against them set aside in order to revive their tenancies. Under the law as it now stands a tolerated trespasser does not have the right to buy, nor the right to claim against their landlord for breaches of any covenant (such as disrepair), nor the right of succession for family members if this was included in the original tenancy.
The proposed changes in the law will have a significant impact on landlords and tenants alike. We can assist you in any landlord and tenant law matter.
Partner Note
Announced April 2008 – see The Solicitors Journal, 22 April 2008, p 7, and New Law Journal, 9 May 2008, p 656.
Unlawful Interference with Road Access
“When Kingston upon Thames Borough Council recently took on the Sisters of the Sacred Heart of Mary, they took on more than they bargained for,” says <<CONTACT DETAILS>>.
The Council wanted to install an unmanned, code-operated barrier in order to prevent traffic from using a private road, owned by the Sisters and others, as a short cut. The local residents would have been provided with the numeric code to open the gate in order to gain access to the road.
The owners of the properties adjacent to the private road argued, however, that the barrier would prevent authorised visitors from gaining access. As well as the Sisters, who run three schools in the area, the owners include Unilever plc, which has a training centre there. The property owners applied for an injunction to prevent the Council from erecting the barrier.
It was argued that the barrier would significantly impede access to the claimants’ properties and would therefore breach statutory rights conferred by the 1933 Maldens and Coombe Urban District Council Act. It was also stated that the wide range of visitors needing access to the school and the training premises made the use of a code-operated barrier impracticable.
The use of a barrier of this kind might be workable for private residents of a housing estate but the installation of one in this case was likely to cause substantial interference to persons with a legitimate right of access to properties adjoining the road.
Accordingly, the injunction was granted and the Council was prevented from building the barrier.
Partner Note
Sisters of the Sacred Heart of Mary Ltd. and others v Kingston upon Thames Borough Council. Chancery Division: Times Law Reports, 18 April 2008.
When is a Lease Created?
Tenants have significant rights compared with occupiers of premises whose occupation is by virtue of a licence, so it is sometimes important to be sure of the basis of occupation and to be aware of the fact that tenants’ rights can be created in some circumstances when a formal lease has not been signed.
This is because the Law of Property Act 1954 (Section 54) provides that a lease can come into being without the need for the preparation of a written lease. There are certain conditions which apply in such circumstances, which are, in simplified terms, that:
- the lease cannot exceed three years;
- the term starts when the lease is put into effect (i.e. not later); and
- the rent is the market rent for the premises.
Recently, an appeal was heard from tenants who were occupying premises paying a rent of approximately one third of the market rate under a one-page agreement which was not properly executed as a lease, but which they claimed was sufficient to constitute a lease under Section 54. They claimed that as a result they had security of tenure when a new purchaser of the freehold of the unit they let sought to evict them from the premises.
The case went to the Court of Appeal, which concluded that the tenants did not have a lease under Section 54 as the requirement that the rent payable was equivalent to a market rent was not met. Accordingly, the arrangement could be terminated on demand.
“Had the rent payable been close to the market rent, the decision may well have been different,” says <<CONTACT DETAILS>>. “A landlord who had driven a harder bargain to start with might have found himself with a property that had a sitting tenant and was therefore more difficult to sell as a result. It makes sense in cases in which premises are occupied on an informal basis to put the arrangements in proper form so that questions such as this can be dealt with speedily.”
Partner Note
Fitzkriston LLP v Panayi[2008] All ER (D) 165 (Feb).