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Three reasons to remember 1 October 2015 1 October 2015

Here are three reasons to remember today, 1 October 2015:

1.  Consumer Protection

The Consumer Rights Act 2015 comes into force today, replacing the Sale of Goods Act, the Unfair Terms in Consumer Contracts Regulations and the Supply of Goods and Services Act (the Which? website contains some useful commentary on the new provisions).  This is a significant change that gives consumers new rights, although it inevitably creates more complexity.

By way of example, have a look at Schedule 2 to the Consumer Rights Act 2015 (Commencement No. 3, Transitional Provisions, Savings and Consequential Amendments) Order 2015.  In 134 terse paragraphs, it sets out “Amendments consequential to the commencement of Schedule 5 to the Consumer Rights Act 2015”, which affect 50 or 60 (I lost count) sets of regulations, starting with the Crystal Glass (Descriptions) Regulations 1973 and ending with the Cosmetic Products Enforcement Regulations 2013.  A masterpiece, without question.

2.  Minimum Energy Efficiency Standard

When the regulations to implement the Minimum Energy Efficiency Standard were introduced shortly before the general election earlier this year, the start date of 1 April 2018 seemed to be comfortably far away in the future.

As at 1 October 2015, it is exactly 2½ years away.  That’s beginning to feel uncomfortably close.

Incidentally, here are details of a talk I will be giving in London on the regulations on Monday 12 October for the Commercial Real Estate Legal Association.  Tickets are still available, and both members and non-members will be welcome.

3.  My final blog article

Many readers will already be aware that I have recently taken up a new role as a professional support lawyer in the Real Estate Group at Shoosmiths.  It is therefore no longer appropriate for me to continue writing blog articles on this website, so this will be the final one.  I am sure that I will be writing occasional articles for the Shoosmiths website.

Thank you to all my readers of this blog for your ideas, questions, support and encouragement.

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Thousands of buildings open during the next two weekends 11 September 2015

We are approaching the time of year when thousands of buildings in England open to the public over two weekends, entirely free of charge.  Some of these are normally not open at all, while others normally charge but visiting will be free on these days.

First of all, this weekend (12/13 September 2015) will be Heritage Open Days around the whole of England, with the exception of London.  On Saturday, to take just one example near where I live, you can visit the elegant Woking railway control room, constructed in the 1930s when the railway was electrified.  It is no longer used but has been beautifully preserved, with all its art deco features intact.  There are several thousand other places to choose from, and a brilliant interactive map on the website to help you decide where to go.

And next weekend (20/21 September 2015) is Open House London.  As usual, I will be acting as a volunteer guide at one of the buildings on the Sunday.  This year it is the office of the London Mathematical Society, at 57/58 Russell Square, London WC2.

Click through to the respective websites and plan your visits now !  May the sun shine for us all.

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The implications of protecting the priority of an agreement for lease 11 September 2015

Is it important whether the wording of a lease granted pursuant to an earlier agreement for lease follows exactly the form annexed to the agreement?  There might be SDLT implications, I suppose.  But there is a definite possibility that it could affect the effectiveness of any priority protection for the agreement for lease at the Land Registry.

I wrote about the case of A2 Dominion Homes Ltd v Prince Evans Solicitors [2015] EWHC 2490 (Ch) in my article “Effect of registering a notice at the Land Registry to protect an agreement for lease” on 21 July 2015.  At the time all we had was a Lawtel summary.  The court ruled that a notice lodged to protect an agreement for lease was effective also to provide priority for the lease granted pursuant to the agreement for lease.  In that case, the landlord had granted a mortgage over the property between exchange of the agreement for lease and the grant of the lease itself (there were 33 of them, in fact).  The court held that the tenants’ leases took priority over the mortgage, and therefore that the mortgagee’s consent was not needed under the terms of the mortgage.

That made sense.  In fact, it was what we had always assumed to be the case – had we stopped to think about it.

The devil is in the detail

But, as usual, the devil is in the detail.  The transcript is now available (although only available so far to Lawtel subscribers).  In summing up what the judge considers to be the law, there is a nasty sting in the tail:

“32.  In relation to the two points raised by Mr Denehan, in what I must say was a most attractive argument, it seems to me that a clear distinction between the agreement for the leases and the leases themselves is rather artificial. The latter are the product of the former.  In my view, so long as the leases themselves strictly conform to what the agreement for the leases provides, it is wrong to make a distinction between equity and the law in the way that Mr Denehan does [ie to distinguish between the priority afforded to the agreement for the lease and the priority afforded to the resulting lease].  In the result, I will answer the preliminary issue in the negative.” (My underlining)

The underlined wording is where a problem may lie in the future.  Grudgingly, I think I have to agree with the judge’s view.  From the point of view of the mortgagee in this case, for example, the terms of the lease were known, and the mortgage was granted subject to that lease – but not any other lease.  So when will a change in the wording of a lease take it beyond what any prior agreement provides for?

Keen landlord and tenant anoraks (are there any other kind?) will remember that a similar issue arose in Receiver for the Metropolitan Police District v Palacegate Properties Ltd [2001] Ch 131.  This was a case under the old contracting-out system under the Landlord and Tenant Act 1954, which required a court order to be obtained.  The question in that case was whether the contracting-out agreement was still valid if the wording of the lease had been changed after the court order (which exhibited a copy of the lease) had been made.  The alteration in that case was merely that the rent would be payable in advance rather than in arrears.  Pill LJ in the Court of Appeal in that case said —

“The words “that tenancy” in section 38(4)(a) [of the 1954 Act] require its terms to bear a substantial similarity to that before the court when authority was given.  In particular, changes material to the need for protection may nullify the authority granted.  For example, the length of the term would be a material consideration in the case of a lease which contemplated substantial capital expenditure by the tenant.”

So, on the facts of that case, the (extremely minor) amendment to the lease did not vitiate the parties’ agreement to contract out the lease.

In passing, the issue is, of course, still relevant to the more modern contracting-out procedure involving the landlord’s warning notice and tenant’s declaration (or statutory declaration) introduced in 2004.  At what point does one start worrying that the lease that the tenant is entering into is no longer in the same form as the lease in respect of which the landlord’s notice was served?  In other words, does the Palacegate ratio still apply under the current procedure?  (Or, to complicate matters, does it even matter, as I suspect that it was assumed by the civil servants who wrote the new procedure that the warning notice would be served at heads of terms stage, long before any draft lease had even been proffered to the tenant.  On that view, no variation of the wording would be relevant so long as the core details of the transaction have not changed.)

So where does that leave us, in relation to protecting an agreement for lease?  My feeling is that Palacegate is irrelevant, as it related solely to a specific statutory procedure under which it was important for the tenant’s interests to be protected.

So we are in completely unknown territory.  I imagine that the court (if ever asked) would say that one looks at the question from the mortgagee’s point of view.  Is the mortgagee disadvantaged by the lease that has been granted as compared by the lease that was envisaged to be granted by the agreement for lease to which the mortgagee took subject.  That would be something that the mortgagee would probably find it difficult to show – perhaps a materially lower rent, or a longer term.

McCausland

It might also be necessary to consider the implications of McCausland v Duncan Lawrie Ltd [1996] 4 All ER 995.  In that case the Court of Appeal held that the effect of varying a contract is to create a new contract.  In that case the variation (of the completion date) was by exchange of letters, which was held not to satisfy the requirements of section 2 Law of Property (Miscellaneous Provisions) Act 1989.  That meant that, on the facts, there was no new contract.

Of course, if there had been a new contract, it would be necessary to consider whether any notice to protect the old (superseded) contract would also protect the new contract.  That could be relevant in a case like this.  However, in our case, the likelihood of a new contract coming into existence where the form of lease is varied slightly between exchange and completion is slim, I think, as there would probably be no one document that would satisfy section 2.

The practical answer

Of course, some agreements for lease may provide for the lease to be granted “in the form of the attached lease with such amendments as the landlord and the tenant may agree“.  Might that solve the problem entirely?  Would that mean that a mortgagee would be subject to any changes that the parties agree?  Perhaps, but it must be rare for this type of problem to arise – so we may never find out.

Click here for the transcript on Lawtel (subscription required)

 

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The effect on commercial leases of the Minimum Energy Efficiency Standard – Part 2 1 September 2015

This is a very long article. I have therefore prepared a PDF version of it, to make it easier to read and print out.

PDF version of this article

In Part 1 of this article, published on 27 August 2015, I started to consider the effect on commercial leases of the Minimum Energy Efficiency Standard, which I shall term MEES.

I looked at seven different aspects of commercial leases, and concluded that in relation to MEES, typical lease provisions will make it relatively difficult for landlords to pass on the costs to their tenants.  So for future lettings, might landlords want to alter the wording of typical leases so that they are more in their favour?  I will consider this question under the same seven headings.

As in Part 1 of this article, everything that I am talking about relates to commercial lettings.  I don’t know enough about residential lettings to be able to talk sensibly about what is likely to happen.

Also as in Part 1 of this article, this is only a very quick summary of some of the key issues.  I have not carried out any detailed research into the cases.

Again, I am grateful to Charles Woollam of Sustainable Investment & Asset Management (SIAM) for commenting on the initial draft of this article (but of course the views in it are my own).

1.  Service charges

Assume that a lease allows a landlord to recover via a service charge the cost of operating and maintaining a building, but not improving it, which is a good baseline (some leases may allow landlords the cost of improvements, in which case those landlords need not read any further).  In Part 1 of this article, I concluded that landlords may well be able to recover the costs of replacing plant by more energy-efficient versions from their tenants where this entails replacing kit that is life-expired.  But where the current system is in working order and is only being replaced because the landlord needs to obtain a better EPC rating, the cost of replacement is likely to fall on the landlord rather than the tenant.

So landlords may wish to ensure that they are expressly permitted to include in the service charge the cost of replacing kit that is still in working order in order to improve the building’s energy efficiency.  There are various ways of saying this, depending upon how obvious the landlord wants to make it.

By way of example, the Model Commercial Lease already contains a provision that allows the landlord to include in the service charge:

“Auditing the Environmental Performance of the Building and, where reasonable and cost-effective to do so, implementing the recommendations of any environmental management plan the Landlord has for the Building from time to time”

This looks pretty innocuous, so many tenants will overlook it.  Furthermore, a tenant who does see it may well be prepared to accept it given that the landlord cannot take advantage of this provision unless it is reasonable and cost-effective to carry out the improvement works.

2.  Yielding up

In Part 1 of this article, I concluded that a standard yielding-up provision does not require a tenant to bring the property up to a minimum E rating at the end of the term.

The suggestion I have heard is that the wording of the yielding-up provision should therefore be amended so that it requires tenants to ensure that, at the end of the term, the EPC rating of a building is no less than the minimum required under MEES, or perhaps even the same rating (or at least the same rating) as existed when the property was first let.

This seems unfair to tenants.  The basic position has always been that they should deliver the premises back to the landlord at the end of the term in a good state of repair – which might be a better state of repair than when they took it, but at least it is the same property.  Requiring a particular level of EPC rating might well involve handing back an improved property, which is more than a repairing covenant would normally require.  This was discussed in the seminal case of Ravenseft Properties Ltd v Davstone (Holdings) Ltd [1980] QB 12.  The key question, of course, is one of fact: is the tenant being asked to hand back something different from what was originally demised?  In that case the court held that a property with effective expansion joints in the exterior stonework was effectively the same property as had been demised (but with faulty expansion joints).

In passing, it is worth pointing out that it is possible that the criteria for obtaining a particular EPC rating may tighten over time, if the requirements of the Building Regulations change.  So a property that is rated D today may be rated E in five years’ time.  I have to say that this is something that I have heard many times, but I have no idea whether it is correct.  The workings of the algorithm inside the EPC software for commercial properties (SBEM – Simplified Building Energy Model) is a mystery not just to me but to everyone else I have spoken to about it.

If this is correct, then a tenant who agrees to hand back a property with at least the same EPC rating could be taking on a commitment potentially to hand back a different property at the end of the term.  Tenants would be ill-advised to accept such a provision, in case this argument is correct.

3.  Statutory compliance

In Part 1 of this article, I concluded (tentatively) that a tenant that agrees to comply with statute in respect of the property does not become liable to ensure that the property has a minimum E rating, or to pay the costs of work necessary to achieve it.  I cannot see landlords trying to change that situation.

In fact, perhaps tenants should be asking for a specific carve-out to this provision to make it clear that tenants are not liable to carry out any works that are required directly as a result of MEES (although from a landlord’s point of view, this is not desirable, as it may not be possible to ascertain whether particular works would or would not fall within such a carve-out).

4.  Governing how, and when, a tenant obtains an EPC

It is relatively rare for leases to govern how, and when, a tenant obtains an EPC, but this is likely to change pretty quickly.

There are a number of reasons why landlords may be concerned about this.

First, there is a perception (unproven, I hasten to add) that some EPC assessors “mark higher” than others, and landlords may have their favourite assessor, and may not want the tenant to use any other assessor.

Also, a later EPC supersedes an earlier one, so a landlord will not want a tenant inadvertently to reduce the rating of the property by obtaining its own EPC rating that turns out to be lower than the current one (not impossible – rating a complex building seems to be as much an art as a science).  It is still unclear what effect a later EPC of part of a building will have on an EPC of the whole.  Possibly it will supersede the earlier EPC to the extent of the part of the building to which it relates (it is thought unlikely that it will supersede the EPC in relation to the whole building).  In any event, this is an area that a landlord will want to stay well clear of.

Thirdly, where a building does not yet have an EPC, a landlord may wish to prevent a tenant obtaining one, except where the tenant is legally bound to obtain one (ie in advance of a proposed assignment or sub-letting).  This is to try to ensure that the building is not brought within MEES as from April 2023 when it would otherwise be outside MEES because it does not have an EPC at all.  (However it may be too late to worry about that now, since any lease granted now will require an EPC to be obtained in any case.  So it is only relevant to leases that were granted before 2007 and that will still exist in 2023.  There probably are not too many of those.  Although that is of course assuming that landlords obtained EPCs when they were meant to obtain them, which might not be the case.)

So for all these reasons, there may be provisions in new leases about EPCs.  It is thought that it is unrealistic for a landlord to stipulate in a lease that a tenant must not obtain its own EPC, given that there are occasions when the tenant is under a legal obligation to pass a copy on (to a potential assignee or sub-tenant).

However, a landlord may wish a tenant not to obtain its own EPC when there is already an EPC in place for the building.  Where there is no EPC, landlords might wish tenants to use the landlord’s choice of EPC assessor.  The landlord might even wish the tenant to ask the landlord to obtain an EPC where the tenant needs one, where there is no EPC in place already.  The fact that the tenant would not then have to pay for the EPC may be sufficiently attractive for the tenant to accept such a provision.

It is worth mentioning that if the tenant breaches such a covenant against obtaining its own EPC, the landlord is going to be unable to do much about it.  The tenant’s EPC will exist and cannot be made to unexist.

5.  Alterations

Currently alterations covenants do not mention environmental performance.  I have heard it suggested that landlords might wish to be able to prevent tenants carrying out alterations that would (or perhaps merely might) have an adverse effect on the building’s environmental performance, or perhaps on the EPC rating.

Tenants would be nervous about accepting such a restriction.  It could interfere with their normal use of the property for their business.  A change of use of part of the property to, for example, a server room could worsen the EPC rating.  Or at least a landlord could raise that argument, and leave the tenant to try to refute it.

As an alternative, it has been suggested that landlords might be prepared to let tenants carry out whatever alterations they are permitted to carry out under the lease, without regard to any effect those alterations might have on the EPC rating, on condition that the tenant returns the property at the end of the term with an EPC rating at least as good as when the lease was granted.  That would only be appropriate in a letting of whole, where it would be clear that it was the tenant that was responsible for the drop in the EPC rating during the term (this would not be the case in a multi-occupied building).

For the reasons explained in the “yielding up” section above, tenants should be wary of agreeing to such provisions.  In addition, one cannot be certain that a property that is rated X today will be rated X in ten years’ time, such is the complexity of obtaining an EPC for a commercial building.

6.  Landlord’s right to carry out works to improve energy performance

Landlords may wish to include in new leases a right to enter to carry out energy-efficiency improvement works during the term of the lease.  Tenants will probably not be keen on this, but some may agree.  They might want to limit the type of works that are permitted: would a tenant be happy to see a complete recladding exercise carried out, while it was in occupation?  It happens occasionally when (for example) defective panes of glass need to be replaced, but tenants would not want it to become the norm.

However, as mentioned in Part 1 of this article, landlords might be better off by not having such a provision in the lease, as it would deprive them of one of the exemptions within MEES – that works required after April 2023 cannot be carried out because the tenant will not give its consent.

7.  Rent review

Rent reviews present the most difficult area.  A rent review provision assumes a notional letting of the actual property to a notional tenant on the rent review date.  If – at a rent review after April 2018 – the property requires works to be carried out in order to comply with MEES (because it has only an F or G rating), the tenant could argue that a letting would be unlawful and so the rental value of the property would be zero.  In a standard upward-only rent review, that would mean no rent increase for the landlord.

It is quite likely that one or more of the existing assumptions in a typical rent review clause will already cover the point, such as the assumption in the Model Commercial Lease’s rent review schedule that “the Premises may lawfully be let to and used for the Permitted Use by any person throughout the term of the Hypothetical Lease”.

But would it be sensible to include an additional assumption to deal with the point?  Something along the lines of “assuming that the landlord would carry out (at its own cost) any works to the Premises [or the Building] that would be required by the [MEES regulations] before the landlord grants the notional lease of the Premises”.

Inclusion of such words could be criticised on the basis that it is creating a false assumption – and might perhaps require the third party to ascertain exactly what notional works the landlord would have carried out.  Another viewpoint (which I think I favour) is that its inclusion is simply to ensure that the tenant cannot argue that the notional letting envisaged by the rent review machinery cannot take place.  Time will tell whether landlords and tenants feel it necessary to adopt wording of this nature.  My mind is not yet made up one way or the other.

 

IN CONCLUSION

I am pretty sure that we can expect to see some changes to typical leases in the coming months, with a view to enabling landlords to recover from tenants the costs of complying with MEES, and of improving their buildings’ energy efficiency generally. This is not necessarily a bad thing, in theory, since tenants ought to benefit from lower energy bills.  The devil will be in the detail, as usual, and rent review looks like the issue that is going to cause the most difficulties.

 

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The effect on commercial leases of the Minimum Energy Efficiency Standard – Part 1 27 August 2015

This is a very long article. I have therefore prepared a PDF version of it, to make it easier to read and print out.

PDF version of this article

I have been giving some thought (and I know I am not alone) to the effect on commercial leases of the Minimum Energy Efficiency Standard, which I shall term MEES for this article.

Curiously, although there have been two recent articles in Estates Gazette about MEES (in addition to my two articles), there has not yet been an article on the effect of MEES on existing leases, or on changes that are likely to be made on new lettings.  So I will start the ball rolling with this article.  I am grateful to Charles Woollam of Sustainable Investment & Asset Management (SIAM) for commenting on the initial draft of this article (but of course the views in it are my own).

Everything that I am talking about in this article relates to commercial lettings.  I don’t know enough about residential lettings to be able to talk sensibly about what is likely to happen.

The regulations to implement MEES are now in place – the Private Rented Sector (Energy Efficiency) (England and Wales) Regulations 2015.  The reference to “private rented sector” is irrelevant in relation to commercial lettings, by the way.  The regulations apply to lettings of commercial (and other non-domestic) properties by public authorities as well as by private landlords.  The term derives from the language of residential lettings and is seriously misleading.

Two questions need to be asked.  First, how will MEES affect existing leases?  Secondly, what changes need to be made to typical forms of lease for new lettings?  I will look at the first question in this article and at the second question in a separate article next week.

None of this is easy, for at least two reasons.  First, this is all new territory, and secondly we do not yet have a full understanding of how MEES is likely to operate in practice.  DECC has promised us some (non-statutory) guidance but nothing has appeared yet.

It seems pretty clear (to me at least) that the Government expected landlords to pay the cost of improving properties to satisfy MEES.  Whether or not it expected those landlords to be able to extract a higher rent from the property as a result is less clear.  In theory, that depends on the local market.  If all the buildings around you are D rated, you are not going to get a higher rent for your property that has just been improved from a G rating to a D rating merely because you have just spent a shedload of money on it.

But in practice what seems to be happening (or being talked about, at least) is that landlords are expecting to recoup as much of the cost of this exercise from tenants as possible, and if they cannot get it back in higher rent, then they are looking at the other provisions in leases.  For example, I have heard of landlords who are expecting tenants under existing leases to return the property at the end of the term with an E rating or above (which is misconceived, as explained below).

It isn’t all bad news, of course.  The only works that MEES requires to be carried out are ones that pay for themselves through energy savings.  Landlords may – with some justification – argue that the primary reason for making these improvements is for the benefit of the tenants.  It will reduce their costs, and enable them to sublet, and on that basis tenants may be happy to contribute towards the costs of improving a building.  But there will need to be a pretty quick pay-back.  Perhaps seven years will be thought appropriate – the same period as in the MEES test (but tenants whose leases expire earlier than seven years may feel differently).  And tenants need to consider what should happen if they are persuaded to contribute towards capital costs by the promise of lower energy bills, and the bills never do get lower.  In relation to residential properties, that was apparently one of the reasons for the failure of the Green Deal. 

EFFECT OF MEES ON EXISTING COMMERCIAL LEASES

What follows is a very quick summary of some of the key issues.  I have not carried out any detailed research into the individual issues yet.

1.  Service charges

In the case of a multi-occupied building with a rating of F or G, landlords are likely to be sorely tempted by the idea of recovering costs of compliance with MEES through a building’s service charge, so as to be able to let any vacant areas from 2018 onwards.

Currently there is a fairly clear distinction (in theory, if not in practice) between the costs of repair and maintenance (for which tenants expect to pay through a service charge) and the cost of improvements (for which tenants would not expect to pay).  This was demonstrated by the case of Fluor Daniel Properties Ltd v Shortlands Investments Ltd [2001] EWHC 705 (Ch).  The High Court ruled in that case that the landlords were not entitled to recover through the service charge the cost of replacing air conditioning kit that was still in working order.

However, the distinction between improvements and repairs is not quite as easy to draw as this makes it sound.  Replacement of subsidiary parts of a building that need replacement because they can no longer be repaired (or where it is not cost-effective to repair them) is treated as repair – in which case it is likely that landlords will be able to recover the costs.  Replacing the boiler will often be a simple way of improving a building’s EPC rating, and may well constitute repair rather than improvement, where it is nearing the end of its life.

The RICS Service Charge Code (third edition), which has no legal status of course, mentions the point in its introduction, where it says:

“Service charge costs do not generally include … any improvement costs above the costs of normal maintenance, repair or replacement.  Service charge costs may include enhancement of the fabric, plant or equipment, where such expenditure can be justified following an analysis of reasonable options and alternatives, and with regard to a cost-benefit analysis over the term of the occupiers’ leases.”

2.  Yielding-up

As I mentioned above, some landlords have expressed the view that under a typical yielding up provision in a lease, the tenant is required to bring the property up to a minimum E rating at the end of the term.

This is nothing more than wishful thinking, in my view.  There is no connection between a tenant’s repairing obligations (to which the yielding-up provision is related) and the property’s EPC rating.

3.  Statutory compliance

Could a landlord require a tenant to pay the costs of upgrading a property to an E rating through the covenant to comply with statutory obligations in relation to the demised premises?  If this was possible, it could apply to both single-let buildings and the demised parts of multi-let buildings.

This seems once again to be wishful thinking.  Between 2018 and 2023, there is no requirement within MEES on the landlord to carry out any works.  The regulations merely require a minimum EPC rating before a letting.

The position will change from 2023, as owners that are already landlords after that date, in buildings that are F or G rated, will need to carry out works to improve energy efficiency (unless one or more of the exemptions applies).  However, this is an obligation on the landlord as the person who is letting the property (meaning “continuing to let” the property).  It is not related to the tenant’s use or occupation of the property (other than the fact that the property is let, which is what brings it within MEES in the first place).  My current view is that landlords are unlikely to be able to use the statutory compliance provision to pass on to tenants the responsibility of bringing a property up to an E rating, or the costs of so doing, whether before or after the 2023 date.  But that won’t stop landlords from trying, I’m sure.

4.  Governing how, and when, a tenant obtains an EPC

There are some leases that contain provisions governing how, and when, a tenant obtains an EPC.  I imagine this will work as intended.  I am mentioning the point here as I will be covering possible new lease clauses in a second article and this is a likely area where landlords may want additional controls.

5.  Alterations

To what extent, if at all, can a landlord bring environmental issues into play in relation to its control over a tenant’s alterations?  Probably not very much, on the basis of typical alterations provisions.  In a lease of part, these normally provide that tenants can make non-structural alterations with landlord’s consent, and structural alterations are not permitted at all.  A tenant of a single building may be permitted to carry out structural alterations with landlord’s consent.  Given the flexibility of the concept of “reasonableness”, it may already be possible for a landlord to take into account the effect of the tenant’s alterations on the building’s EPC rating when considering whether to give consent to those works, although I have never considered the point before.  But that issue may become clearer in leases in the future, as I will discuss in the second part of this article.

6.  Landlord’s right to carry out works to improve energy performance

Landlords typically reserve extensive rights when granting leases.  In leases of whole buildings, they will often be limited to rights necessary for maintaining adjoining buildings.  In leases of part, they will also allow entry in connection with maintaining the remainder of the building or centre.  Some leases allow the landlord to enter in connection with improvement works being carried out to adjoining properties but a well-advised tenant will try to resist this.

Would these provisions allow a landlord to enter premises to carry out works to improve energy performance, either of the premises or the building as a whole ?  That is too broad a question to be able to answer with a generic answer, but – as in the comments under “service charges” above – the answer is more likely to be No than Yes.  Improving energy performance is likely to be considered to be improvement rather than maintenance, and therefore likely to be outside the scope of what the landlord is entitled to do.  I stress again that this is only the broadest of approaches, and each lease would need to be considered individually.

Curiously, landlords might wish to claim that they do not have the right to enter to carry out improvement works, which is the opposite of what one might expect.  This is because the MEES regulations contain an exemption under which a landlord does not need to carry out works to improve energy-efficiency (from 2023) if tenant’s consent is needed and cannot be obtained.  This exemption lasts for only five years, and it means that the property has to be included on the exemptions register, which may possibly carry a stigma.  But landlords may still be happy to take advantage of it.

7.  Rent review

The impact of MEES on rent reviews is currently a mystery, although I am not certain how important it is going to be in practice.

A rent review provision assumes a notional letting of the actual property to a notional tenant on the rent review date.  If – at a rent review after April 2018 – the landlord is required to carry out works in order to comply with MEES (because it has only an F or G rating), the tenant (it is said) could argue that the notional letting would be unlawful and so the rental value of the property would be zero.

This is not a very convincing argument.  In practice, if a property was going to be let and needed works doing, the landlord would have to carry out the works, at its own cost.  So the argument that the rental value of the property would be zero is fallacious.  It would still have a value.

It is also arguable that one or more of the typical assumptions in a rent review provision would mean that the MEES argument fell away – perhaps that there is a willing landlord and a willing tenant, or that the property is fit for occupation and use, or that the property may lawfully be used for the purpose for which it is being let.  There is an article there waiting to be written (but I don’t want to be the one to have to write it).

Or perhaps it is arguable that MEES does not actually prevent a letting, since a letting in breach still creates a valid lease.  In that case, the problem goes away.

We must not forget that the purpose of a rent review is to ascertain a rent for a lease that is already in existence, and avoid the sorts of rent review arguments that clogged up the courts in the 1970s and 1980s, all of which look pretty misguided now.  The worst of them (in my view) was the once-held view that “ignoring rent” meant also ignoring the rent review provision, so that the hypothetical lease contained no rent review provisions at all, resulting in the tenant paying a much higher rent than the market rent.  (The classic example of this was National Westminster Bank plc v Arthur Young McClelland Moores & Co [1985] 1 WLR 1123).  Yet the most recent Supreme Court case on interpretation, Arnold v Britton [2015] UKSC 36, demonstrated that where there is no obvious ambiguity, a provision in a lease (or elsewhere) has to be interpreted to mean what it says, so there is plenty of room left for argument on this sort of point.)

 

So that is a very brief look at existing lease provisions – which seem to be pretty much in tenants’ favour.  In the second part of the article, to be published next week, I will consider how a typical lease precedent might be altered so as to favour the landlord more.

 

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New exception from protection afforded by Landlord and Tenant Act 1954 11 August 2015

A new exception is to be introduced from the protection afforded by Part 2 of the Landlord and Tenant Act 1954.  We are already familiar with contracted-out leases (in section 38A) and tenancies of six months or less, subject to some important restrictions (section 43(3)).  On a good day we might even remember that mining leases and farm business tenancies are excluded (section 43(1)).  Now we shall have to get used to the exclusion of “home business tenancies”, once the strangely numbered new section 43ZA comes into force.

Section 43ZA will be introduced into the Landlord and Tenant Act 1954 by section 35 Small Business, Enterprise and Employment Act 2015.  Its purpose is to allow people to work from home without creating the statutory protection that applies to business tenants.

The definition of “home business tenancy” is contained in new section 43ZA(2).  It is a letting of a property as a dwelling to one or more individuals, which requires the tenant to occupy the property as a home but also permits the tenant to run a home business from the property (that use of “requires” the tenant to occupy the property as a home is a bit strange – I would have expected “permits”, but I don’t know if the difference is significant).

What is a “home business”?  The definition is simple: “a business of a kind which might reasonably be carried on at home”.  So anything involving IT sounds OK (apart from running a server farm, perhaps), but not steel-making or soft-drink bottling.  Doubtless there will be plenty of marginal occupations, such as car repairs and pet grooming.  Regulations may be made about what is and is not a home business, by the Secretary of State of the Department for Business, Innovation and Skills in England, and the Welsh Government in Wales (so another opportunity for divergence of law between the two countries, as I have previously observed is happening more and more frequently).

There is an important exception from the new exclusion: by section 35(5) Small Business, Enterprise and Employment Act 2015, new section 43ZA will not apply to any tenancy that was already in existence before it is brought into force.  Curiously the exception is contained in the enabling act (the Small Business, Enterprise and Employment Act 2015) rather than in the Landlord and Tenant Act 1954, so it will be easily overlooked once the provision is in force.  This is lousy drafting.  The exception should be in section 43ZA itself.

There is one other change that will be introduced by section 35 Small Business, Enterprise and Employment Act 2015.  Section 23(4) of the 1954 Act already provides that there is no statutory protection where the tenant is carrying on a business in breach of a prohibition of use for business purposes, unless the immediate landlord or his predecessor in title has consented to the breach or acquiesced in it.  For completeness, new section 23(5) will provide that the landlord’s consent or acquiescence to the tenant’s carrying on of a business will not bring the tenancy within the statutory protection where the business that the tenant is carrying on is a “home business”.  It seems to me that this provision is likely to be a great deal more useful for landlords than the new express exclusion to be contained in new section 43ZA.

 

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Uncommonly British days out 9 August 2015

I am off to a wedding in South Wales in a couple of weeks’ time, so I popped into the City of London library in Shoe Lane to pick up a couple of Ordnance Survey maps of the area (I can’t visit without thinking of Lord Denning’s trenchant comment in relation to exclusion clauses in Thornton v Shoe Lane Parking Ltd**).

And there, on the “You might be interested in these summer holiday books” display by the entrance was “Far from the s*dd*ng crowd – More uncommonly British days out“, which I picked up with alacrity.  I am a great fan of the original “B*ll*cks to Alton Towers” by the same authors, but I did not know that they had produced a sequel.  (It seems that there are only two books – the paperback version of this book was published under the title of “More b*ll*cks to Alton Towers“.)

Both books highlight curious museums, collections, landmarks and follies that are an antidote to the overcrowded and overpriced amusement parks and seaside resorts that are more typical destinations in the UK for modern holidaymakers.

This follow-up book features gems such as the Bubblecar Museum in Lincolnshire, Edward I’s uncompleted Beaumaris Castle on Anglesey, the Fan Museum in Greenwich, Port Logan Fish Pond in Galloway and the Bakelite Museum near Taunton.  I want to visit every one of them.

The books’ attraction is not just the attractions that readers are exhorted to visit, but also the writing.  It’s clever and humorous – but never patronising.  Writing a patronising review of any of these places would have been a great deal easier than what the authors have actually done.

So I encourage you to acquire these books, and then support the astonishing attractions featured within them.

** “In order to give sufficient notice, [the exempting condition] would need to be printed in red ink with a red hand pointing to it – or something equally startling

 

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Some good tips for delegation 5 August 2015

It’s very easy to fritter away the first 15 minutes of your day by reading the morning’s e-mails and linked articles (including, I suppose, this one).  One of the greatest time-wasters is the “Pulse” section of LinkedIn.  That section provides an opportunity for people who want to write about something to do so.  And some of them even have something interesting to say.

I found such an interesting article there this morning that I want to share it with you.  It’s called “3 Delegation Mistakes You Don’t Have to Make” (LinkedIn Is American I Think Which Explains All The Irritating Capital Letters In Headlines) and it’s written by someone called David Dye.  You can read the article by clicking on the link.  I think it’s available to everyone, whether or not you are a member of LinkedIn (and if you are not, then I think you probably ought to join it, but that’s a different story).

The essence of the article is simple.  Delegating badly is worse than not delegating at all, for you at least and probably for the person you are delegating to as well.

Delegating is good for three reasons:

•  you can’t do everything yourself
•  other people have talents and abilities that you don’t have
•  it gives opportunity to others to develop new skills and experience

The three mistakes that the author highlights are:

•  delegating the process, rather than the outcome.  Delegating the process is simply micromanaging or training
•  failing to explain what success looks like
•  failing to keep an eye on the project – which the author calls “accountability”

My only criticism of the article is that it is written in the classic web-publishing style of Things You Mustn’t Do.  So the sub-headings are behaviours to avoid.  At the first reading, I assumed they were behaviours that you should follow, which made the article a bit of a mystery to me at the start.  But now that I have alerted you to that error, have a read of the article and see what you think.

That’s another ten minutes of this morning frittered away.  Almost lunchtime …

 

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Chattel or part of the land? The naked truth 30 July 2015

I wrote recently about a case in which the court took the view that a lodge in a holiday park was a chattel, meaning that the occupier had a lease only of the land and not of the structure (to use a neutral word) – and therefore did not benefit from the protections given to residential tenants by the Landlord and Tenant Act 1985 (see “Dwelling on the problems” on 26 February 2015).

Now here is a similar case, but with three twists.  The case is Spielplatz Ltd v Pearson [2015] EWCA Civ 804.  First, in this case the court decided that the structure (termed a “chalet” in this case) was part of the land, and therefore the tenant was an assured tenant, with all the benefits that that brings (including the landlord’s implied covenant to repair).  This was in part because a jointly instructed expert had opined that “the original construction would have been intended to be permanent and was not mobile or movable at any point in its life.”  In effect, the structure could only have been moved by demolishing it and rebuilding it elsewhere.

Secondly, this decision was reached in spite of the fact that both landlord and tenant were convinced that the chalet belonged to the tenant (ie that it was a chattel, not part of the land).  Sir Colin Rimer, giving the only judgment in the Court of Appeal, said:

“The [tenants] had likewise believed, and were adamant in their evidence, that they owned the chalet.”

He went on to say:

“The judge observed that whilst, therefore, both parties were denying that [the landlord] had any interest in the chalet, it might be that they were both wrong.”

This gives me an excuse to trot out (once again) my favourite landlord and tenant quote, which is from Lord Templeman in Street v Mountford [1985] AC 809:

“The manufacture of a five pronged implement for manual digging results in a fork even if the manufacturer, unfamiliar with the English language, insists that he intended to make and has made a spade.”

(Incidentally, you can read an article about that case, which I wrote last year for Landlord & Tenant Review, by clicking on this link.)

Thirdly, the park in which the structure had been erected was a naturist resort.  From my limited researches, this ought to have nothing whatever to do with the law as to whether the structure was part of the land or a chattel, but I remain nervous about being definitive about that, given that both the Court of Appeal and the writer of the Lawtel summary took the trouble to tell us that the landlord, Spielplatz Limited, ran a naturist resort (near St Albans, should you be tempted to investigate).  I think it must be the same sort of reporting that insists that the age of anyone who is mentioned in a newspaper is provided, despite it rarely being relevant in any way.

In passing, I was hoping to find the usual statement in this sort of decision that the judge had carried out a site visit – which could have made the fact that the chalet was located within a naturist resort a very relevant factor indeed.  It took me back to the classic Peter Sellers’ film “A Shot in the Dark”.  You may recall that Inspector Clusoe has to visit a naturist resort while investigating a murder.  The audience’s sensibilities are, fortunately, protected by means of a strategically placed guitar.

peter sellers

Sadly history does not relate whether the judge in this case made a site visit or, if she did, what (if any) musical instrument she was carrying around with her at the time.  In any event, the judge (Her Honour Judge Lindsay Davies at Luton County Court) deserves plaudits for reaching the conclusion that the chalet was part of the land,despite hearing evidence from both the landlord and the tenant that it was not.

 

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Who owns “Old Flo” ? 27 July 2015

“Old Flo” was the not-exactly-complimentary nickname given by the residents of  the Stifford Estate in East London to the Henry Moore statue “Draped Seated Woman”, which was placed (at considerable expense) in the centre of the Estate in 1962 by the developers, London County Council.  The estate has now been redeveloped by its current owners, Tower Hamlets BC.  The statue is temporarily in the Yorkshire Sculpture Park and Tower Hamlets had plans to sell it.  But is it theirs to sell ?

lh428_stifford_estate_tower_hamlets_315_2_0

This was the issue in the recent High Court case of Tower Hamlets London Borough Council v Bromley London Borough Council (in its capacity as successor to the London Residuary Body) [2015] EWHC 1954 (Ch).

The judge had to consider three questions:

1.  Was the statue a chattel or had it become part of the land and so ceased to be a chattel?  The statue rested on the ground under its own weight, which suggested that it was a chattel.  It is true that there are cases from the past in which items resting under their own weight have nevertheless been held to be part of the land, as mentioned by Scarman LJ in Berkley v Poulett [1977] 1 EGLR 86, who said:

“Nevertheless an object, resting on the ground by its own weight alone, can be a fixture, if it be so heavy that there is no need to tie it into a foundation, and if it were put in place to improve the realty” (emphasis added)

In this case, the judge decided that even if the purpose of the acquisition of the statue was to improve Londoners’ lives generally, there was no intention to improve this particular piece of realty by its being placed in the Stifford Estate.  It could have been placed anywhere.

2.  What was the history of ownership of the statue?  This required a complicated analysis of various statutes (as opposed to statues) and statutory instruments.  LCC’s assets passed to the Greater London Council when it was abolished.  Some of the GLC’s assets passed to Tower Hamlets in 1981, including the Stifford Estate.  However, the judge held that this did not include the statue, as it was a chattel and not part of that Estate, nor was it “connected property” nor an “estate amenity”, nor did it pass under section 62 Law of Property Act 1925.  So the statue stayed with the GLC.

When the GLC was abolished in 1986, the statue passed to its statutory successor, the London Residuary Body.  Mysteriously, the assets of that body are now (for a reason that is not explained in the judgment, and that I have not yet investigated) vested in Bromley LBC (by Article 3 of the London Residuary Body (Winding Up) Order 1996).

3.  So the statue passed to Bromley in 1996, but does Bromley still own it?  This is where the trail becomes very surprising.  Tower Hamlets had twice lent the statue to the Yorkshire Sculpture Park.  The second occasion was when Stifford Estate was being demolished in 1996, and the statue is still in Yorkshire today.  For this, and other, reasons, the judge held that Tower Hamlets had “converted” the statue, and that it was too late for Bromley to recover it under the six-year period in the Limitation Act 1980 – so its title had been extinguished.  “Conversion” is a tort under which one person deprives another person of his property without consent.  The judge summarised the relevant circumstances as being:

“(a) The conduct of Tower Hamlets must have been inconsistent with the rights of Bromley as owner;

(b) The conduct of Tower Hamlets must have been deliberate, not accidental;

(c) The conduct must have been so  extensive an encroachment on the rights of Bromley as to exclude Bromley from the use and possession of the sculpture (so going beyond mere interference which may found a claim in trespass) …”

He found that Tower Hamlets’ conduct had satisfied the various tests, meaning that Bromley could no longer assert title to the statue.  Which means that Tower Hamlets now owns it.  And, although he did not say as much, it seems that there is nothing that Bromley can now do about it.  But, in any case, Tower Hamlets is now saying that the statue is not going to be sold after all (see this article in The Guardian on 8 July 2015).

 

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Government to end funding for Green Deal 24 July 2015

The Government announced yesterday in this press release that, in light of low take-up and concerns about industry standards, there will be no further funding to the Green Deal Finance Company.   The Green Deal Finance Company, which describes itself as a “not-for-profit” company set up by industry participants and other stakeholders to deliver the Green Deal, says on its website that is no longer accepting any new applications for Green Deals.

The Government says in a new blog article yesterday (artfully entitled “Changes to green home improvement policies announced today“) that the Green Deal’s framework remains in place should other finance providers wish to come forward to enter the market.  If the Green Deal did not work successfully using Government funding, it seems unlikely that any other organisation would wish to step in to fund it.

The Government says that it will work with the building industry and consumer groups on “a new value-for-money approach”.  However, future schemes must provide better value for money, supporting the goal of insulating a million more homes over the next five years and the Government’s commitment to tackle fuel poverty.

This decision has no impact on existing Green Deal Finance Plans or existing Green Deal Home Improvement Fund applications and vouchers.  The Energy Company Obligation (ECO) will continue to run as planned until March 2017, to provide support to low-income households.

This announcement is applicable only to domestic properties, as Green Deals for non-domestic (commercial) properties have never been introduced.

To be honest, this decision has come as no surprise, given the low take-up of the Green Deal and the current (not-in-any-coalition) Government’s obvious disdain for the energy-saving agenda.  Green enthusiasts have had a bad few weeks.  Last month it was announced that the subsidy scheme for onshore wind farms will be closed from next April, one year earlier than planned, and on 10 July the Government said that it is scrapping the rules that will require zero-carbon homes from 2016 and zero-carbon non-domestic buildings from 2019.

You can read an article about the ending of the Green Deal on the Guardian’s website here.

UPDATE: There was a discussion about the Green Deal on Radio 4’s You and Yours today which you can listen to on iPlayer here (starting at about 15:00).  It’s entitled “Bothies, Rail passenger assistance, Choose what you pay” (no mention of the Green Deal).

Effect on Minimum Energy Efficiency Standard (MEES)

I have not yet seen any discussion of how the end of the Green Deal will affect MEES.  As originally conceived (as set out in this undated Government policy document), MEES relied entirely upon the Green Deal.  The obligation on landlords (domestic and commercial) was to have been to carry out any works that entailed “no upfront cost”.  In practice, that would mean works that satisfied the Green Deal’s “Golden Rule” – that the energy efficiency improvements would pay for themselves in energy-savings over their expected lifetime.  No Green Deal – no need to carry out any energy efficiency improvements.

This rather neat policy worked satisfactorily for domestic properties, but could not be extended to non-domestic (commercial) properties because of the absence (now and in the foreseeable future) of any commercial Green Deal system.  This led to the seven year payback alternative for MEES as it applies to commercial properties.

So, in theory, MEES should still be workable for commercial properties even after the ending of the Green Deal.  But I think that MEES for domestic properties still relies entirely upon the existence of the Green Deal.  So without a Green Deal, is there any future for MEES for domestic properties?  I am not sufficiently familiar with how MEES is intended to apply to domestic properties to be sure of the answer to that question, but I have my doubts.  I am also unclear whether the new procedure (taking effect next year) under which a residential tenant will be able to request consent to install energy efficiency measures at a property will make any sense without the Green Deal.

Please let me have your thoughts.

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Making the law in Wales more accessible 22 July 2015

Two initiatives have just been announced to make the law in Wales more accessible: a Welsh legislation website and a Law Commission consultation.

I lamented in my blog article “England and Wales: becoming increasingly different” on 11 February 2015 that it is extremely difficult to identify those areas where the law in Wales has diverged from the law in England.  It is difficult enough for lawyers in Wales, who are aware of the possibility (or sometimes the inevitability).  It is even more difficult for lawyers in England, who may not be aware of it, or may overlook it.

Clearly, important people read my blog articles (or possibly great minds think alike), as there have been two recent developments that aim to improve the position.

First, the Welsh Government, with the help of Westlaw, has developed a Welsh legislation website.

Law Wales

Cyfraith Cymru

This lists relevant legislation – both primary and secondary – in a number of areas in which the Welsh Government legislates, and provides links to the statutes or secondary legislation on the Government’s legislation website (www.legislation.gov.uk).

There are two minor criticisms.  First, I have noticed, on a quick inspection, that all the legislation is shown in English, even on the Welsh version of the website, and all the links to the secondary legislation are to the English version, even where there is a Welsh version.  No doubt that will be addressed in a future upgrade.  In the meantime, access to a PDF of the Welsh version is just one click away.

Secondly, people may not be aware that while primary legislation is updated on the Government’s website to reflect later amendments, secondary legislation is not.  Being directed to the original version of a statutory instrument is of relatively little use unless you are certain that it has not been amended subsequently.

But these are relatively minor quibbles (particularly for an English-speaking solicitor).   Only when the website is used in real research will it be clear whether or not it is helpful.  I will be interested in hear people’s views on this.  At the very least, it is a solution to the previously unanswerable question of where to start looking to see whether Welsh law has diverged from English law in any particular area.

Law Commission consultation

The other development is at an earlier stage but is potentially much more exciting. The Law Commission has just launched a consultation to consider “the form and accessibility of the law applicable to Wales”.  This is an advisory project, which will make recommendations to the Welsh Government.

The Law Commission points out that the law across the whole of the UK can be difficult for professionals and the public to find and understand.  In Wales, the process of devolution has made things even more complicated.

In particular, it can be very difficult to find and understand the law in devolved areas, as a result of changes to the powers of the National Assembly for Wales and the Welsh Government. There is often confusion over where responsibilities lie.  Functions under many Acts of Parliament have been transferred to the Welsh Ministers, but this will not be apparent in the original Act and it could appear that power continues to lie with the Secretary of State.  The picture is made more complicated by the pace at which significant areas of the law applicable in Wales – such as education, health and housing – are diverging from the law in England.

So the Law Commission is now consulting on how to make the existing law applicable in Wales easier to use and understand.  In the consultation paper, it considers:

  • whether the legislation should be consolidated or whether the Welsh Government should go further, and codify parts of the law;
  • what measures the National Assembly of Wales could put in place to ensure it has effective systems for making law;
  • what processes could be established within Government and the Assembly to allow policy and law-makers to take a more considered view of the law as a whole before making new legislation;
  • whether the Welsh language is embedded into the law-making process so that legislation made in Wales is truly bilingual; and
  • how legislation could be made more accessible to the public;  it considers the need for a free, up-to-date and comprehensive online resource, explanatory notes for legislation, Welsh law text books, and other guidance.

 

Interestingly, some of the issues that are raised are equally relevant to English law (and English/Welsh law, by which I mean the law that applies in both countries).  So it seems to me that for that reason, and also because English solicitors need to have access to the law in Wales, lawyers in England need to look at the consultation document and respond to it.  Don’t think it’s only of relevance to lawyers (and others) in Wales.

The consultation is open until 9 October 2015 – which seems a long way off, but will arrive only too soon.  The consultation papers (in England and Welsh), and summaries in both languages, are available on this page of the Law Commission’s website.

 

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Effect of registering a notice at the Land Registry to protect an agreement for lease 21 July 2015

What is the effect of registering a notice at the Land Registry to protect an agreement for lease?  That was the question answered as a preliminary issue in A2 Dominion Homes Ltd v Prince Evans, decided on 15 July 2015 and so far reported only in summary on Lawtel (subscription needed).

The facts were simple, although the surrounding circumstances are more complicated.  A landowner (L) entered into an agreement for lease with a housing association (H) for the grant of 33 long leases of flats in a block of flats.  The price exceeded £3m and there was a deposit of £1.25m.  H’s solicitors registered a unilateral notice to protect the agreement for lease, as one would expect.

But here is the twist.  Before the leases were granted, L charged the property to a bank (B).  It was agreed that B’s consent was needed to the grant of a lease.  But was B’s consent necessary to the grant of the 33 leases that L had already agreed to grant to H?

No, said Robert Englehart QC, acting as a judge in the Chancery Division.  Curiously, there appears to be no authority one way or the other, but the reason for registering a notice is to confer priority for the purpose of section 29 Land Registration Act 2002. If B’s consent were needed to the grant of the lease, that would mean that the arrangement between L and B would have priority over the earlier, and protected, arrangement between L and H – which is exactly the opposite of what section 29 provides, once a notice has been registered.  So B’s consent was not needed.  H’s notice protected not just the agreement for lease, but also the lease that is to be granted at completion pursuant to the agreement.

This has to be the correct answer, from the point of view of land registration law.  And – happily – it’s the fair answer as well.  According to the Lawtel summary, the judge was also heartened to see that the view was supported by comments in Megarry & Wade “The Law of Real Property” (paras 17-057 and 17-058, since you ask, although I haven’t looked at them yet) – which may not be surprising, given that one of the editors of that work is Charles Harpum, who (as law commissioner at the time) played a significant role in devising the system of priorities in the Land Registration Act 2002.

Click here for the Lawtel summary (subscription required)

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An avalanche of claims against solicitors 15 July 2015

In the last few weeks we have seen a surprising number of cases in which conveyancing solicitors have been alleged to have been negligent.  I have summarised six such cases below.

What can we learn from them?  As seems so often to be the case, it is difficult to see any trend, and equally difficult to establish any simple system to ensure that errors of the kind demonstrated by these cases are eliminated.  Checklists help, of course, as does robust supervision.  Both are easier to talk about than to implement.  And the use of checklists throws up its own problem: people assume that conveyancing can be dumbed down into box-ticking, which is assuredly not the case.

Fryatt v Preston Mellor Harrison [2015] EWHC 1683 (Ch)

F, a developer, was negotiating for an option over a piece of land owned by a company.  For reasons that are unclear, the transaction was restructured into an option over the shares in the company.  The buyer’s lawyer (an experienced legal executive) did not alert the buyer to the additional risk this would entail, as he (the lawyer) did not appreciate that this would give the buyer no interest in the land during the option period (in fact he registered a notice against the property at the Land Registry). The company went into liquidation so the option over the shares was valueless and the liquidator sold the land to a third party.

The court held that the solicitors had been negligent.  However, the claim failed on the issue of causation, for two reasons.  First, the buyer could not show that he would have restructured the transaction if he had understood the risks of taking an option over the shares rather than over the property; secondly he could not show that he would have exercised the option as the development appraisal figures showed that he could not have carried out the development at a profit.

Lawtel transcript (subscription needed)

 

Orientfield Holdings Ltd v Bird & Bird LLP [2015] EWHC 1963 (Ch)

Solicitors acting for a buyer of a very high value property (£25m) in St John’s Wood, London NW8 obtained a “Plansearch” report, which revealed details of proposed transactions in the vicinity including the development of a school nearby.  Inexplicably the firm did not mention this proposed development to the buyer, or provide a copy of the report to the buyer.  This was held to be negligent.

In the event, on discovering the existence of the development the clients failed to complete the purchase, and then sought to recover the half of the deposit that had been forfeited from their solicitors.  They were successful.  The judge said that there had been no requirement to obtain the Plansearch report but, once it had been obtained, there was an obligation to reveal its contents to the client.  Failure to do so constituted negligence —

“… if in fact a solicitor acquires information that may be of importance to a client, then it is the duty of the solicitor to bring that information to the attention of the client.”

BAILII transcript (free)

 

LSC Finance Ltd v Abensons Law Ltd [2015] EWHC 1163 (Ch)

This was a mortgage fraud case.  The solicitor who acted for the borrower failed to spot that she was not who she claimed to be.  The lender was left with a forged mortgage and claimed against the solicitor on the basis that he had undertaken (in standard form) to obtain a first legal charge over the property.  One of the key issues in the case was whether this was sufficient to pass the risk of forgery from the lender to the solicitor.  The court held that it was sufficient – on the facts of the case, which included the particular wording in the lender’s form of undertaking.

In addition, the solicitor was held liable for breach of warranty of authority, in that he was saying that he was acting for the real borrower when he was not.  Again, this was decided on the particular facts in this case.

Obviously, verifying a person’s genuine identity can be very tricky, especially where – as in this case – it appears that the scam involved a man passing off as his wife someone who looked very much like the photograph of his wife in her passport.  No-one likes to enquire in too much detail.  But in this case the solicitor had the opportunity also to check the signature on the mortgage against previous signatures, which he either did not do, or was wilfully blind to the difference.  In the end the fraud was picked up by the Land Registry, which did spot the difference between signatures on the mortgage and on an earlier transfer.

BAILII transcript (free)

 

Luffeorm Ltd v Kitsons LLP  (2 July 2015, Queen’s Bench Division)

Kitsons were acting for the buyer of a public house as a going concern.  The contract proffered by the seller’s solicitors contained no provision restricting the sellers from carrying on a competing business in the neighbourhood after the sale, which the conveyancing partner failed to point out to the client.  Astonishingly, the court held that this constituted negligence, with no explanation as to why this should be the case (particularly as the clients were experienced business people).  In the event, fortunately for the solicitors, the court was not convinced that the buyer would have acted any differently had the advice been given, so no damages were payable.

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Royal Mail Estates Ltd v Maples Teesdale [2015] EWHC 1890 (Ch)

This is a very curious case in which Royal Mail Estates entered into a contract to dispose of land to a company that had not yet been created.  Maples Teesdale, which was purporting to act for the company, signed the contract as agents.  The effect of section 36C Companies Act 1985 (relevant at the time) was that the agents became liable under the contract, “subject to any agreement to the contrary”.  The contract contained the normal provision “The benefit of this contract is personal to the buyer.”  Maples Teesdale argued that this was an agreement to the contrary for the purpose of section 36C.

The court disagreed.  For the exception to apply, there has to be an agreement between the parties by which they intended to avoid the effect of section 36C.  This was not the effect of the wording in the contract in this case.

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Giambrone & Law group action case [2015] EWHC 1946 (QB)

This judgment was handed down last week.  It is 152 pages long and far too long to summarise here.  In brief, it concerns the failure of an Italian law firm (with an office in London) adequately to protect the interests of UK buyers of properties in a proposed development in Southern Italy.  Either the due diligence, or the contractual protections negotiated, or both, proved to be insufficient and the buyers lost their 50% deposits when building work ceased.  The solicitors were held to be liable in relation to certain matters, although claimants will still need to prove their cases individually – and the solicitors say they will be appealing.

You can read about it in this article from the Lawyer (which will require registration first) —

Giambrone claimants win case but face fight for damages payout

The reference to the fight for damages relates to the indemnity insurer taking the view that all the separate claims relating to the sale of properties in this development are to be treated as one event under the insurance policy, which is limited to £3 million.  Virtually all of this amount has already been paid out to claimants in an earlier action who have already settled, so there is no money left to settle the claimants in this action.

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GRESB – a tool for assessing sustainability 25 June 2015

How does one assess how sustainable one’s property, or property portfolio, is?  This is becoming an increasingly important question, particularly for organisations with large portfolios who want to demonstrate their “green” credentials to potential shareholders/investors.

GRESB, the Global Real Estate Sustainability Benchmark, is a measuring tool that is becoming popular.  I recently attended a presentation on GRESB given by Lizzie Batchelor, the Sustainability Manager of Savills (UK) Ltd.  I thought it would be helpful for others to learn about GRESB, and Lizzie has kindly contributed the following explanation.

About GRESB

The Global Real Estate Sustainability Benchmark has been running for 5 years. This is the only benchmark which fully examines sustainability-related issues specifically for the real estate sector. The survey has seen growing popularity, with 637 property companies submitting last year.

The GRESB Survey runs each year from 1 April to 30 June.  The questions cover seven aspects, with the highest weighting falling under “Performance Indicators” and “Stakeholder Engagement” sections. The highest ranking organisations or funds will achieve “Green Stars”.  Last year approximately a third of organisations obtained this status.

Why organisations are choosing GRESB

● Transparent performance metrics

● It is a well-regarded portfolio benchmark, providing assurance to investors, shareholders and other stakeholders.

● Scope to improve PR recognition on sustainability.

● Improving a score may lead to a fall in the operational costs of a property or portfolio.

● Creates a clear focus, helping to engender continuous improvement for the organisation.

This is only a brief introduction, so that you recognise the abbreviation when you see it.  You can find more information about GRESB at www.gresb.com.

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