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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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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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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.

BAILII transcript (free)

 

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.

BAILII transcript (free)

 

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.

BAILII summary (free)

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Not such a new Act after all 19 June 2015

It has come as something of a shock to realise that a lawyer needs to be no older than 35 to have never dealt with land certificates, stamp duty or the process of contracting-out a business tenancy by obtaining a court order.

One of the topics that I cover in my Ten Important Pointers: Easements talk is the tricky question of when easements need to be protected under the Land Registration Act 2002, or the “new Act” as I tend to call it.  So it came as something of a shock earlier this week – in the middle of the talk – to realise that it isn’t very new now.  It came into force in October 2003, which is almost twelve years ago.

As I observed, quite a number of the lawyers listening to the talk were probably still at school in 2003.

So let’s have a look at various key property events, and see how old you would have to be to remember them when they happened.  Let’s assume you qualified as a solicitor at the age of 25, as I did.  There was, incidentally, less law back in those days – and in the days before the Internet, e-mails and PSLs, it was difficult to find out about new law anyway.  There have always been lawyers who are not very knowledgeable about (or even aware of) recent legal changes.  I suspect it was a lot more common in the past.

Look at statutes first.  The first serious change in the law that I can remember having to learn about was the Law of Property (Miscellaneous Provisions) Act 1989.  Most of my readers will immediately recognise the significance of that act, which introduced stricter requirements for the formalities for creating contracts for the sale and purchase of property and other interests in land.  By then I had been qualified for six years. But you would need to be 26 years PQE now to remember that change.  Assuming qualification at the age of 25, you would need to be at least 51.

The next major milestone in terms of statutes is probably the Landlord and Tenant (Covenants) Act 1995 – another “new Act”.  As I type this, it comes as a huge shock to realise that it was passed almost exactly 20 years ago (19 July 1995, to be exact.  I have just checked).  It came into force on 1 January 1996 and it feels like only yesterday that we were marking its tenth anniversary.  Again, assuming qualification at the age of 25, you would need to be 44 now to have been there at the time.  Lawyers younger than that can never imagine the confusion and uncertainty that the 1995 Act engendered.  Nor will they have ever been involved in the grant of what we now call an “old tenancy” – although they may have encountered quite a few since then.  Another scary thought: there cannot be many rack rent “old tenancies” left now (although there must be hundreds of thousands of “old tenancies” of flats that will be around for another couple of generations at least).

Back to the Land Registration Act 2002.  It came into force on 13 October 2003 and you would need to be 37 now to have been in practice at the time.  It made some pretty significant changes, including abolishing land and charge certificates, which we oldies still think are a pretty good way of establishing ownership and deterring fraud.  (For some reason the Land Registry disagrees – probably because fraudsters were simply claiming they had lost their certificates and applied for new ones.)

It’s not just statutes.  Stamp Duty was replaced by Stamp Duty Land Tax in 2003 – replacing a tax on documents with a tax on transactions.  That was 12 years ago as well, so anyone under 37 will not have experienced sending off a document with a cheque and receiving it back festooned with impressed stamps.  And don’t even get me started on the thrill of applying to the county court (or the Mayor’s and City of London court in the City) to contract out a lease under the now-repealed section 38(4) Landlord and Tenant Act 1954.  That procedure ended in 2004 when the ludicrous (equally ludicrous, some might say) notice and declaration procedure was introduced.

This isn’t an issue that just affects formal teaching.  It’s relevant to everyone who supervises colleagues.  It’s easy to assume that everyone has had the same experiences as you have had.  But it’s salutary to remember that younger people will not have had many of those experiences (although they will of course have had others that you have not had).

There is a delightful postscript to this article.  I was sitting in the Law Society Library (yes there still is one) yesterday between engagements, and the tranquillity was shattered by a visit from a rather deaf retired lawyer who was, I think, reliving his past (possibly to show the library to his friend).  Being deaf, he spoke rather loudly, and the whole room learned that he had received his admission certificate from the Master of the Rolls in 1951.  I was well impressed.  That was not just seven years before I received mine, but seven years before I was born.  I wonder what law he would be writing about that I had never experienced, had he been writing this article.  “Then they passed this law that gave security of tenure to business tenants.  What a waste of time.  Scottish tenants manage perfectly well without it …”.  And then a few years later, in 1969 “Now they have passed a law that says that landlords and tenants can contract out of security of tenure by going to the court to get an order.  What a ludicrous procedure.  What possible protection is the tenant getting if the court is just going to rubber-stamp the parties’ application?”

Plus ça change …

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Supreme Court upholds an orthodox approach to contractual interpretation 11 June 2015

The Supreme Court yesterday upheld the Court of Appeal’s decision in Arnold v Britton [2015] UKSC 36 – meaning that the landlord’s interpretation of the service charge clause has prevailed, absurd though it is.  Lord Neuberger reminded us:

“… while commercial common sense is a very important factor to take into account when interpreting a contract, a court should be very slow to reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed, even ignoring the benefit of wisdom of hindsight. The purpose of interpretation is to identify what the parties have agreed, not what the court thinks that they should have agreed.”

Background

The case concerns a series of leases of holiday chalets at a park in South Wales, for a term of 99 years from 1974.  There are a number of different versions of the lease but, in brief, the most pernicious of them requires the tenants to pay annual sums to the landlord that increase by 10% annually (from a starting point of £90).  The sums are expressed to be payable in respect of “… a proportionate part of the expenses and outgoings incurred by the Lessors in the repair maintenance and renewal of the facilities of the Estate and the provision of services hereinafter set out …”.

The startling impact of an annual increase of 10% was explained in my blog article on 20 January 2015 entitled “The danger posed by geometric progressions”.  By the end of the lease, the annual sum will exceed £1 million.  Surely this cannot be what the parties had intended when they entered into the leases, for two reasons.  First, the sum itself is absurd; secondly the sum bears no relation to the amounts that the landlord is likely to expend in providing the services.  This was the dilemma that the Supreme Court had to address.  Is the provision to be read literally, or is it permissible to interpret it in a more sensible way, which does not require the tenant of each chalet to be required to pay such improbable sums?  (For simplicity I will refer to “the tenant” in the singular, although there were a number of tenants under a number of leases.)

The role of the court was explained by Lord Carnwath (who delivered the dissenting judgment) as follows:

“… we must inquire (sic) ‘what a reasonable person would have understood the parties to have meant, that person being one who had ‘all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract’, and who would have also taken into account ‘the practical consequences of deciding that it means one thing or the other’.  Where necessary the reasonable observer can be invited notionally to take on the more active role of ‘officious bystander’, in order to interrogate the parties as to their common intentions.”

It is important to understand that when a court interprets a document, the parties’ actual intentions are irrelevant.  What matters is what they have actually included in the document.  To be honest, sometimes the two approaches can be difficult to distinguish.

The tenants faced two difficulties that ultimately even their experienced counsel (Timothy Morshead QC) was unable to overcome.  First, four of the five Supreme Court Justices did not accept that the disputed clause was ambiguous on the face of it.  Once a clause becomes ambiguous, it becomes permissible for the courts to move away from a purely natural interpretation.  Lord Neuberger explained (at [18]):

“… I accept that the less clear [the words] are, or to put it another way, the worse their drafting, the more ready the court can properly be to depart from their natural meaning.”

Secondly, in respect of some (although not all) of the leases, there was a conceivable explanation for the annual 10% increase: inflation in the 1970s and early 1980s was running in double figures (and peaked at 24% in 1975).  That meant that it was not entirely impossible that the parties had intended to include some form of inflation adjustment, and might conceivably have settled at 10% for simplicity.

The Supreme Court’s decision

Ultimately, the Supreme Court came down 4-1 in favour of the landlord’s interpretation.  One of the majority was Lord Neuberger, who gave the main judgment (on behalf of himself, Lord Sumption and Lord Hughes).  As would be expected, Lord Neuberger expressed “considerable sympathy” with the view that the tenant’s appeal should succeed – but did not believe that the tenant had demonstrated that its reading was the correct one.  The tenant’s interpretation was that the 10% increase annually in the service charge should be treated as a cap on the annual increase.  He said that the tenant’s interpretation would involve “departing from the natural meaning of [the clause], and it involves inserting words which are not there.”

The tenant may take some comfort – but, in the circumstances, probably not very much comfort – from the fact the one of the Justices, Lord Carnwath, agreed with the tenant’s interpretation.  He took the approach that I had mentioned in the last paragraph of my blog article – that the purpose of the clause was to enable the landlord to recover its actual costs of providing the services.  The two parts of the clause were mutually inconsistent, and the part that should take precedence was the requirement to pay the landlord “a proportionate part of the expenses and outgoings incurred by the Lessors in the repair maintenance renewal and the provision of services hereinafter set out”.

Accordingly, Lord Carnwath accepted the tenant’s interpretation of the clause: that the 10% increase in the service charge was to be treated as a cap on the annual increase rather than as a formula for calculating the annual payments.

Conclusions

One has to sympathise with the tenants in this dispute.  They are saddled with a contract under which they are required to pay increasingly large sums every year, effectively receiving nothing in return, for the residue of the term of 99 years.  There is no possibility of their coming up with those sums.  Fortunately it appears that the landlord has said, through her counsel, that she is willing to negotiate a variation of the leases to substitute (among other changes) an adjustment linked to CPI instead of the 10% fixed sum (although the extent to which this relieves the tenants does depend upon what they will be asked to concede in return, and also what sum is to be taken as the base figure – the payment in 2012 is said to have been over £3,000).

I was hoping that the Supreme Court would find a solution to the tenants’ difficulties, but it was not to be.  It is obviously unsatisfactory that two Supreme Court Justices can find two entirely opposing meanings to the same clause.  Pondering the judgment overnight, I have decided that it is difficult to identify which of the two Justices has taken the braver approach: Lord Carnwath, differing from his four colleagues in an attempt to do justice between the parties, or Lord Neuberger, persisting with an orthodox approach to a dispute over interpretation despite (I am assuming) an instinctive distaste on his part for the outcome that this has produced.

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At all times and for all purposes 4 June 2015

A is a farmer, who enjoys an easement over a track owned by B in the following terms:

“at all times and for all purposes … in common with all other persons having the like right …”

A decides to diversify, and obtains planning permission to create a campsite and caravan park for 200 pitches, accessible only by using the track.  B objects, since the use of the track has vastly increased.  A responds by pointing to the words “at all times and for all purposes” in the easement.  Who is right?

A question of this kind came up for discussion at my Ten Important Pointers: Easements course when I presented it for the first time earlier this week.  Surely the phrase “at all times and for all purposes” must mean what it says?  Actually, no.  The facts above are those in Jelbert v Davis [1968] 1 WLR 589.  In that case, Lord Denning emphasised the wording “in common with all other persons having the like right”, saying:

“In my opinion, a grant in these terms does not authorise an unlimited use of the way.  Although the right is granted “at all times and for all purposes”, nevertheless it is not a sole right.  It is a right “in common with all other persons having the like right.”  It must not be used so as to interfere unreasonably with the use by those other persons, that is, with their use of it as they do now, or as they may do lawfully in the future.  The only way in which the rights of all can be reconciled is by holding that none of them must use the way excessively.”

Accordingly, B was entitled to prevent A’s visitors using the track to reach the campsite and caravan park.

This decision will come as a surprise to many people.

Next week: I will consider another case, decided very recently, in which a court ruled that a statutory provision does not mean what it says.  Isn’t law difficult?

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Dwelling on the problems 26 February 2015

Would you recognise a “building” if you saw one ?  This turns out to be a surprisingly important question for residential tenants.

In passing, we have a definition of building in the Energy Performance of Buildings regulations: “a roofed construction having walls”.  But that is not relevant in the case of the Landlord and Tenant Act 1985 (the 1985 Act).  Perhaps surprisingly, it turns out that the Act does not contain a definition of “building”.  This matters a lot, given that in order to have the protections conferred by that Act, a person has to be the “tenant of a dwelling”, and “dwelling” is defined (in section 38) to mean “a building or part of a building occupied or intended to be occupied as a separate dwelling …”.

We all agree that a caravan is not a building.  It is a chattel (a large one, but nevertheless a chattel).  So is a garden shed.  At the other end of the scale, a house constructed in conventional manner using bricks, with foundations dug into the soil, will definitely be a building.  Somewhere along the continuum between those two, an item changes from a chattel to a building.  To enjoy the protections conferred by the 1985 Act, one needs to be on the correct side of the dividing line.

The “lodge” (to use a neutral word) that was the subject of the recent case of Caddick v Whitsand Bay Holiday Park Ltd [2015] UKUT 63 (LC) turned out to lie on the wrong side of the dividing line.  This was a “Park home” manufactured by Omar Park Homes Ltd in 2004.  It was made up of two separate timber-framed sections, each brought onto the holiday park and joined together.  It rested on timber blocks, and was chained onto a concrete base to stop it from blowing away.  Originally it had had wheels but these had been removed.  A wooden screen concealed the gap between the floor and the ground.  Mains services were connected and a wooden decking had been built around the perimeter.

Experts agreed that it would be possible to move the “lodge” without any material damage, and relocate it to a different site.  From the judge’s description, it appeared to be the sort of object that is frequently seen (in two separated halves) on the back of a lorry on a motorway.  It is large, but it does not need an escort so long as it remains on main roads.

Mr and Mrs Caddick owned a lodge on a plot on the Whitsand Bay Holiday Park near Plymouth under a 125 year lease.  They, with other leaseholders, applied to the Leasehold Valuation Tribunal for the determination of service charges payable under section 27A of the 1985 Act.  This would only be available to people who were “tenants of dwellings”.  In this decision, an appeal to the Upper Tribunal, the judge had to decide whether the lodge was a building, and hence a dwelling, within the meaning of section 38.  He decided it was not a building.  (Technically the decision is obiter for reasons that do not need to concern us, but it is still of considerable value.)  He referred to the House of Lords case of Elitestone Ltd v Morris [1997] 1 WLR 687, in which a bungalow was held to be part of the land on which it stood, principally because it could not be removed without being demolished.  This “lodge”, on the other hand, could easily be removed without being demolished.  Evidence was given to this effect from an expert whose company specialised in selling and siting new mobile homes and in relocating them.

So this was not a building, and therefore was not a dwelling, and therefore the protections for residential tenants in sections 18-30 of the 1985 Act did not apply. This is a major disadvantage for occupiers of such properties.

Two other thoughts occur to me but I have had no time to address them in detail yet.  First, perhaps the Mobile Homes legislation might provide some protection to occupiers of such constructions.  I have never looked at that legislation but I suspect that whatever protection it contains will not be as comprehensive as the protection given to tenants under the 1985 Act.  Secondly, could it be that this issue has been entirely overlooked in other cases?  In particular, could it have been overlooked in Phillips v Francis [2014] EWCA Civ 1395, which concerned the manner in which the service charge provisions in the Landlord and Tenant Act 1985 operate (see my article “Service charge consultation requirements with residential tenants: as you were” on 3 November 2014).  The properties in that case were wooden lodges that may well have been similar to the one in this case.  If so, the reasoning in this case could be the thin end of an extremely large wedge.

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Why “boilerplate”? 24 February 2015

I am writing some PowerPoint slides about lease negotiation, and this week I am looking at what lawyers call “boilerplate”.  This is all the dull stuff that seems to be the same (or more or less the same) whichever firm drafted the document.

One definition, from Websters New World Law Dictionary (a US publication) is:

“Any standardized (sic) language or working that is almost always found in certain legal documents such as contracts and deeds. The terms are often in fine print and typically deal with matters that are either non-controversial or non-negotiable.”

So I started to wonder, for the umpteenth time, why it’s called “boilerplate”.  What possible connection could there be between the steel used for making boilers and the dull stuff in a contract ?  As usual, the answer is in Wikipedia.

The original meaning of boilerplate (in the sense of words) was text made available to newspapers in standard form, so that every paper printed exactly the same column or advertisement.  The key to the name was that this text was supplied in a form that was already typeset and ready for the printing press, stamped (for durability) into sheets of steel – presumably the same material used for making boilers (although I imagine not quite so robust).  This was termed “boilerplate text” or just “boilerplate”.

The term then became used for any text that is used in an unchanged form, including text in legal documents.  In a standard form contract, of course, the text really is unchangeable.  However, even in a document intended to be negotiated, such as a contract for the sale and purchase of property, or a lease, much of the text (such as the clause relating to interpretation) is rarely altered in practice.

And yet, as I shall be telling people in my lease negotiation talks, that does not mean that you do not need to read it – and amend it where necessary.  Who knows what horrors might be hidden away in the boilerplate provisions.  One law firm’s lease precedent includes within the boilerplate a provision that says that the landlord is not liable after assigning its reversionary interest.  Any alert tenant’s lawyer might want to take a red pen to that.

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Minimum Energy Efficiency Standard Regulations for non-domestic properties 12 February 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

The Department for Energy and Climate Change (DECC) published its response to the consultation on the forthcoming Minimum Energy Efficiency Standard Regulations on 5 February 2015.  I wrote about the response – so far as it relates to non-domestic properties – in my article entitled “Publication of Minimum Energy Efficiency Standard Regulations for non-domestic properties” on the same day.

That article just copied out text from the Government’s response.  Now here are some thoughts, after having read the Government’s response in full, and the draft regulations as well, to enable me to write an article for next weekend’s Estates Gazette.

In passing, let me remind you that the MEES regulations apply to both residential and commercial properties.  But I am going to concentrate (in this and future articles) on commercial properties, as that is my area of (ahem) expertise.

I will split up the article into three: what we already knew, what is new, and areas that I don’t fully understand yet.  Remember what follows applies only to commercial properties. Different rules may apply for residential properties.

WHAT WE ALREADY KNEW

The Government made its intentions pretty clear in last year’s consultation paper, and there are few changes to what was proposed.

Timing – MEES will apply to new leases as from 1 April 2018 and to existing leases as from 1 April 2023.  I continue to feel that the 2023 date is too early.  If it had been five years later, many fewer leases would have been brought into the net and landlords’ lives would have been that much simpler.  And I’m not sure that very many opportunities would have been missed for improving energy efficiency.  I think the opportune time to carry out improvements is when a property is empty.

But the 2023 date will only bite for those properties that already have an EPC, as section 49 Energy Act 2011 says that MEES applies only where there is an EPC for a property. Obvious really.  There is, incidentally, nothing in the MEES regulations that requires a landlord to obtain an EPC.  The main EPC regulations continue to govern that aspect (construction, sale and letting are the only triggers).

EPC rating – this will be E as widely expected, but this is included in the regulations themselves.  So varying the rating will require varying the regulations.  I had anticipated a separate set of regulations containing the rating.

An EPC for this purpose has to be a valid EPC (obviously, but the regulations still say it). So an expired EPC is not an EPC for this purpose.

There is a great definition in the regulations – “sub-standard”.  That describes a property that falls below the E rating.  I think I suggested introducing a definition like that, but I didn’t coin the phrase.  Well done to whoever did.

Scope of properties – MEES covers properties that need an EPC under the EPC regulations.  So properties that do not need an EPC will be outside MEES.  The key ones will be listed buildings – assuming the Government corrects the existing EPC regulations.  The current definition has been botched by a lousy bit of copying from the EU directive.  It makes no sense and no-one knows whether listed buildings need an EPC or not.  I wrote about what needs to be done in my article “EPCs and listed buildings” on 18 August 2014.  It is now VITAL that this is sorted out.  It is arguably ridiculous having two Government departments dealing with these different areas (DCLG for EPCs and DECC for MEES).

Short and long leases not in scope – as expected, short leases (six months or less) and long leases (99 years or more) are not in scope.  The six months exception is subject to a 12 month maximum period of occupation (as assessed at the date when the latest lease is granted).  I suggested using the same wording (slightly improved) that is used in section 43(3) of the 1954 Act for the exemption, which has been adopted.

Exemptions – there is to be an exemption where the landlord cannot obtain necessary consents.  The list of people from whom consents are needed is illustrative not exhaustive (which is good).  I still think that tenants are likely to say no more often than yes, just to avoid the inconvenience of having the landlord carry out works to the building during the currency of the lease.

There are other exemptions (mentioned in the next section).

Length of time for exemptions – exemptions will last for five years.  After that time, the landlord must comply or demonstrate a new exemption. Originally it was proposed that an exemption would end when a tenant who had refused consent left.  I think that has been abandoned but I’m not 100% sure.

WHAT IS NEW

Quite a lot is new.

Lease renewals – are within scope (I’m even beginning to write like a civil servant now).  I still think this is nonsense.  The essence of MEES is that the landlord has a choice whether to bring the property up to standard and grant the lease, or not bring the property up to standard and forgo the letting.  So being required to upgrade the property when being compelled to grant a renewal lease (under the 1954 Act) doesn’t make sense.

Even worse, DECC says a lease renewal is within MEES but DCLG says that no EPC is needed for a lease renewal.  They can’t both be right.  Actually, it’s DCLG that is wrong. I’m sure a lease renewal under the 1954 Act is a “letting” for the purpose of the EPC regulations.  But people don’t like to hear that, and the guidance says it isn’t, so we are in a very strange position with renewals.

It gets worse.  As mentioned above, section 49 Energy Act 2011 says that MEES applies only where there is an EPC for a property.  So a lease renewal is within MEES when by chance there is already an EPC but not within MEES when by chance there is no EPC.  That really penalises a landlord who has voluntarily obtained an EPC.  Talking of which:

Voluntary EPCs – there is no distinction made between an EPC obtained in advance of a transaction and a voluntarily-obtained EPC.  I suspected that that would be the case, as (a) the two are indistinguishable on their face and (b) an EPC obtained voluntarily may have been used later for the purpose of a transaction, meaning it is no longer voluntarily obtained (sort of).  Anyway, there is no distinction.  I suspect it is unimportant.  Most landlords who obtained EPCs voluntarily will either (a) have modern energy-efficient buildings or (b) have granted leases recently (or both) so the EPCs are no longer voluntary.

Leases granted with no choice – as well as renewal leases, there are a number of different situations listed (suggested by me, originally, with help from a certain person now no longer living in the UK) where the landlord had no choice over granting the lease.  This includes a contractual obligation, an overriding lease under the 1995 Act and a lease by operation of law.  In such cases I wanted the landlord to be exempt.  Instead the regulations provide that the landlord has six months after the date of the grant in which to comply with MEES (subject to exemptions applying).

A lease granted to a guarantor after the disclaimer of the lease by the tenant’s liquidator was meant to be included as well, but the wording in the draft regulations has become scrambled. Not sure if that can be rescued now.  I think Parliament has to approve or reject the draft regulations in their entirety.  Perhaps there is a “slip rule” to correct obvious errors.  I will speak to DECC about it.

Buyers – this came out of the blue.  It was not mentioned in the consultation although it might have been discussed in roadshows.  An exemption from MEES will not transfer to a buyer.  A buyer of a non-compliant property will either need to bring a property up to an E rating within six months of acquisition or establish a new exemption.  I think that logically this can apply only from 2023, because until then MEES applies only to new lettings.

Cost-effective improvements – this is the most complicated part of MEES and I have not fully got to grips with it yet.  Landlords will be exempt from reaching an E rating for five years where they have carried out all possible cost-effective improvements.  This may be established by using the Green Deal’s golden rule (as originally envisaged) or under a new provision that requires improvements to pay for themselves within no more than seven years.  I’m confused as to whether these are conjunctive or disjunctive (ie – is it “either/or” or “both/and”).  While there is no commercial Green Deal, that doesn’t matter, I suppose.

Paying through the Green Deal is obviously preferable, as the costs are then passed down to the tenant, so there really is “no upfront payment” for the landlord.  The alternative method means the landlord ends up paying itself, which was never envisaged when the policy was devised in about 2010.

There is a complex explanation of what “paying for itself within seven years” means.  I’m not going to comment on it here, as it’s lengthy and it needs discussion with valuers and surveyors.  There is a formula in paragraph 28 that will raise a few eyebrows.  I have tried to reproduce it but failed.  I sense there will need to be an entire blog article devoted to just this one issue before too long.

The list of all possible improvements that landlords must consider in this alternative scenario is by reference to Table 6 of the Building Regulations Approved Document L2B.  I haven’t looked at it, nor do I have any idea at present how one is actually meant to approach the question of which improvements will need to be costed, to see whether they fall within the seven-year payback test.  Then, if they do, how does one decide if one on its own will be sufficient to get you above E, or whether a combination will be needed ?  This is all thoroughly mysterious at present.  Relying entirely on the Green Deal was so much simpler.

DECC is promising some guidance (non-statutory, I imagine).  I hope there is a long chapter on this aspect.

Exemption for works that would devalue the property – this was raised in the consultation document.  DECC has plumped for a reduction of 5% in value, as certified by an independent surveyor (and “independent” is actually defined!).  The exemption is limited to five years.

Unexpectedly, there is another exemption (for five years, once again) where wall insulation required to improve the property would damage the property.  I think that is addressing the concern that external wall insulation (EWI) can trap moisture within buildings in certain cases.  We need to understand more about that.

Register of exemptions – DECC is to create a centralised register in which landlords will need to log evidence of exemptions, such as (presumably) a letter from a tenant refusing consent.  DECC will make the exemptions public, it appears.

An exemption will not be valid unless it has first been registered.  This is actually quite clever.  It creates a stigma for “sub-standard” properties.

Penalties – Enforcement will be the responsibility of local authorities.  Penalties for breach could be significant – up to £150,000 although local authorities will have considerable discretion.  There will be a complex appeal system.  The regulations do not state whether local authorities will be permitted to keep the proceeds of penalties.  If this proves to be the case, this will be a massive incentive on local authorities to enforce the MEES regime.

The future –  There was a suggestion that the regulations would provide for the EPC rating to be progressively raised over time, to encourage long-term investment in energy-saving measures.  The government has not gone down this path.  Instead it says that MEES will be reviewed in 2020.

WHAT I DON’T YET UNDERSTAND

Cost-effective improvements – discussed above.  I need to see the guidance, and discuss it with a surveyor or ten.

Guidance is needed urgently – the regulations are a first step, but without the guidance on how to work out which cost-effective improvements to pursue, investors are still all at sea.

What does seem clear at this stage is that if you have a tenant under a lease that will run beyond 1 April 2023 and you don’t currently have an EPC that will be valid on that date, don’t commission an EPC voluntarily now.  So long as you have no EPC on 1 April 2023, you will not be under any obligation to do anything.

On the other hand, if you are granting a lease between now and 2018 that will last beyond 2023, you will simplify your life immensely (and make your property more saleable) if you bring the property up to an E rating before you grant the lease.  Speak to your friendly sustainability consultant about how best to achieve this.  Changing a few light-bulbs can effect a remarkable improvement, apparently.

How consent needs to be sought – I still do not understand what order steps have to be taken in.  If I have a tenant whose consent I will need after 2023 in order to carry out works, do I cost the works and then ask the tenant, or ask the tenant first (on the basis that if it says no, I don’t need to waste time costing the works)?  But if the tenant doesn’t know what I am planning to do, how can it reasonably consider my request?  This will be covered in the guidance, we are promised.  (The landlord’s obligation is “reasonable efforts … to obtain third party consent” – paragraph 31 of the draft regulations.)

Deliberately not obtaining an EPC – as I said in my consultation response, penalties for breaching the EPC regulations are relatively low.  I am not recommending anyone to do this, but completing a new letting without getting an EPC seems to avoid MEES, with its potentially significant penalties, completely.  This is a very perverse incentive indeed.

Other issues – I’m sure there are plenty of issues that I haven’t yet thought of.  I anticipate we will need a further article on MEES next week.

Training and raising awareness of MEES – I’m already booked to speak about MEES (along with Charles Woollam of SIAM) at an evening talk at the CPD Foundation on 26 March 2015.  Perhaps I will see you there.

Otherwise I am happy to present a one-hour talk on MEES in-house for you and/or your clients.  My rates are remarkably reasonable.

Your thoughts – please do e-mail me (info@nullfalcolegaltraining.co.uk) with any thoughts.  Or you could try leaving a comment at the end of this article.  This system is being tested as I write this.

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England and Wales: becoming increasingly different 11 February 2015

It is rare – although of course not unknown – for lawyers to be dual-qualified in Scotland and in England-and-Wales.  I have the utmost admiration for people with that ability.

Until recently, the idea of becoming capable of advising in England or in Wales – but not in both – was not on anyone’s radar.  Surely this could not be necessary?  Increasingly, however, the law in the two countries is diverging, and I provide three examples below.  The first two are still at a draft stage, although I think they are inevitable.  The third has already happened.

Obviously, the Welsh Government is entitled to legislate as it wishes, with the consent of the people of Wales.  But law that differs between England and Wales causes at least three problems for solicitors, it seems to me.

First, it is novel.  To lawyers physically working in England, in particular, it is an unfamiliar concept and it will require a new way of thinking.  It is a particular issue with property law and landlord and tenant law, of course.

Secondly, it is not going to be easy to remember when the law in Wales differs from the law in England.  Even researching whether the law in Wales is different from the law in England may not be very easy.  (In a number of cases, in fact, the dividing line as to where the Welsh Government has jurisdiction is a bit blurred, although that is a separate issue.)

Thirdly, even when you know the law in Wales is different from the law in England, you will have to become familiar with both laws.  While we were talking about differences in the Use Classes Order (there is no Class A4 or Class A5 in Wales, for example), that did not pose too many problems.  The first and second examples that I provide below will require a great deal more time devoted to them.

SOME EXAMPLES

So here are three examples.

Residential tenancies

The Welsh Governmnent has just published the Renting Homes (Wales) Bill.  The Bill seeks to implement the Law Commission’s Renting Homes Bill (published as long ago as April 2006, and since ignored by the Government in Whitehall), but not quite as we know it, Jim.

This is not a subject with which I am familiar, and so I recommend that you read this post “Let’s all move to Wales” from the wonderful Nearly Legal website.

If you are going to advise on residential tenancies in both England and Wales, and this Bill becomes law (as I imagine it will do), you are going to have to learn a lot of new law – and remember where the law in Wales differs from the law in England.  Similarly if you are an investor or a RSL in both countries, I imagine that you are going to have to change some of your practices.

Stamp Duty Land Tax

This is scary.  The Scots currently pay SDLT, but will be switching to a different land tax in April – Land and Buildings Transaction Tax.

Now it looks as if the Welsh might be switching from SDLT to their own land tax as well.  Yesterday the Welsh Government issued a consultation document entitled Tax devolution in Wales – Land Transaction Tax.   Responses have to be submitted by 6 May 2015.  The proposed new tax would take effect in 2018.

I do not think that I will be responding to this consultation, but if you have views, you need to respond.  (Incidentally in relation to the Minimum Energy Efficiency Standard regulations – to be covered in a blog article tomorrow – DECC received just 49 responses to its consultation last summer.  This was cunningly timed to span exactly the summer holiday period – but surely more people are interested in such important topics.)

Residential tenancy deposits

The Housing (Tenancy Deposits) (Specified Interest Rate) (Revocation) (England) Order 2015 (SI 2015/14) might well be an example of where the law in England is diverging from the law in Wales, as opposed to the other way around, as in the two previous examples.

The statutory instrument mentioned above repeals the Housing (Tenancy Deposits) (Specified Interest Rate) Order 2007, which applies in both England and Wales – but the repeal applies only in England.  So this is creating a new kind of complexity.  As well as legislation that is stated to apply only in England from the outset, or to apply only in Wales from the outset, we now have legislation that used to apply in both England and Wales but now applies only in Wales because it has been repealed in England.  (In fact, I think that in this instance the repeal is taking place because the provision is no longer relevant – but that might not be the case in the future.)

In case anyone cares, the reason for the repeal of the 2007 Order is explained as follows:

“This Order revokes the Housing (Tenancy Deposits) (Specified Interest Rate) Order 2007 (“the 2007 Order”) in England only. The 2007 Order specifies the rate of interest payable by a custodial tenancy deposit scheme on amounts of deposits repaid to tenants and landlords by the scheme at the end of a tenancy. The 2007 Order was only relevant so long as the arrangements under section 212(1) of the Housing Act 2004 – that is, the arrangements under which the tenancy deposit schemes are established – provided for deposits repaid to tenants and landlords to be paid with interest. In England, those arrangements were changed in 2010 to provide that such amounts were no longer required to be paid with interest. The 2007 Order is therefore redundant in England.”

Notice that this explanatory note does not comment upon whether or not the arrangements that were changed in 2010 in England were also changed in Wales.  It is not clear therefore whether the 2007 Order is also redundant in Wales, or whether it still serves a purpose.  That is probably a question that is of interest only to connoisseurs of tenancy deposit schemes, and I don’t count myself among them.

This statutory instrument is, incidentally, a fine example of a statutory instrument that incorporates four words or phrases within brackets.  They are relatively rare.  I have yet to see a statutory instrument that incorporates more than four words or phrases within brackets.  No doubt readers will let me know if they are aware of one.

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