Key cases in 2017
- Silence on mediation is very likely to be unreasonable conduct
- Affirmation of the distinction between repair and improvement by a landlord
- The effect of side letters – even if they do not vary the lease
- A lien on what might have been
- Ancillary use and the extent of easements
- The presumption of use
- Succeeding under Ground (f) of the 1954 Act
- Calling time on overage
- The limitations of proprietary estoppel
- Declaratory relief and the enforceability of restrictive covenants
- Light – no reason to limit encroachment
January 2017
1. Silence on mediation is very likely to be unreasonable conduct
The defendants were the tenants of the claimants’ property (which was used as a school). The claimants made a claim for dilapidations when the lease came to an end shortly after the property was damaged due to theft of lead from the roof. The defendants counterclaimed for rent during the period when the property was unfit for occupation. The claimants were successful in part and claimed costs.
Both parties had expressed a willingness to mediate, however, the defendants subsequently failed to engage with the process without good reason. Eventually, this caused the claimants to continue with litigation due to their disillusionment with the ADR process. The court noted that there was a real prospect of settlement through ADR and that costs were disproportionate to the claim as the offers of each party were only £10,000 apart.
Accordingly, the Court of Appeal upheld the decision of the trial judge and restated the previous message that "to remain silent in the face of an offer to mediate is, absent exceptional circumstances, unreasonable conduct meriting a costs sanction, even in cases where mediation is unlikely to succeed".
The defendants had to pay the price for its actions in “delaying and dragging its feet for no good reason” as the case was clearly suited to mediation.
The decision confirms that a failure to mediate is a highly relevant factor which the court will consider in deciding which party should pay the costs of the proceedings. As a reminder, ADR must always be considered even in cases in which it may not appear appropriate. ADR should never be rejected without stated reasons, but even where reasons are given, these must be sufficient to outweigh the benefit of the proposed method of resolution.
Thakkar and another v. Patel and another [2017] EWCA Civ 117
February 2017
2. Affirmation of the distinction between repair and improvement by a landlord
The landlord council owned a large estate containing flats in purpose built blocks, one of which was owned by the tenant. The tenant was obliged to pay a service charge in respect of costs of repair and a proportion of any improvements made by the landlord. The council served notice under Section 20 of the Landlord and Tenant Act 1985 of its intention to carry out works to the block as part of a large scale repair, including, among other things, the upgrade of the window frames to metal (including the exterior cladding and underlying asbestos) and replacement of the tenant’s flat roof with a pitched one.
The landlord appealed the Upper Tribunal decision that the tenant did not have to pay the full bill for the works, as the windows were merely improvements. The lease entitled the landlord to recover for improvements under the service charge, but Section 19(1)(a) of the LTA 1985 requires residential service charges to be “reasonably incurred”.
The Court of Appeal, in holding that the Upper Tribunal had made no error of law in formulating certain criteria to determine whether service charges had been reasonably incurred, held that a landlord’s approach to repairs, as opposed to optional improvements, should be different; the landlord risks breaching the lease if it fails to carry out a repair but the same cannot be said of an improvement. There was a distinction between what the landlord could recover from the tenant under contract (lease) and under the LTA 1985.
Lewison LJ confirmed that the ability to recover under contract is dictated by the decision to incur such costs being rational, made in good faith and consistent with the purpose of the contract. The statutory test was whether the cost of the work was reasonably incurred by reference to an objective standard of reasonableness, rationality being a lower standard than this. Contribution towards the cost of discretionary improvements by the tenant requires the landlord to “take particular account of the extent of the interests of the lessees, their views on the proposals and the financial impact of proceeding”.
The more discretionary an improvement, or the fewer people it affects in an estate, the more weight should be given to the lessees’ views.
There is no clear distinction between repair and improvement – particularly in large scale building projects such as this one. This will create an additional consideration for a landlord trying to decide (and evidence) whether the works are improvements, to what extent, and the lessees' views and financial standing. The court did not attempt to give guidance for the future, however, the real distinction was the difference between works which the landlord was obliged to undertake and optional improvements. “Reasonably incurred" for the purposes of Section 19(1)(a) LTA 1985 meant the landlord considering the interests of the lessees, their views and financial means. In short, it was not a question of the landlord's decision-making process or whether he had acted reasonably in deciding to undertake the work.
London Borough of Hounslow v. Waaler [2017] EWCA Civ 45
March 2017
3. The effect of side letters – even if they do not vary the lease
The claimant tenant leased retail premises from the defendant landlord for a term of 15 years, initially at £100,000 per annum, subject to open market rent review in the fifth and tenth anniversaries. Under the terms of a side letter between the parties, the landlord agreed to accept a lower rate of rent, increasing gradually over the first five years, to be capped at £125,000 for five years if a higher open market rent was determined upon the first rent review.
One of the conditions for landlord termination of the arrangements in the side letter was non-payment of rent. Accordingly, when the tenant failed to pay rent, the landlord provided notice of immediate termination of the side letter, leaving the rent to be determined under the lease (at open market rent) as if the side letter had never existed. The landlord accepted rent arrears from the tenant on a partial basis as the rent review was outstanding, and an expert determined the rent payable under the rent review as £232,000 per annum.
Using the Cavendish Square Holding BV v. El Makdessi and Parking Eye Ltd. Beavis [2015] UKSC definition of penalty (a contractual provision that imposes a detriment on the party in breach of a primary obligation which is out of all proportion to any legitimate interest of the innocent party...), the court held that:
- the bargain between the parties was reduced rent in consideration for the stature of the tenant
- the side letter changed the primary obligation of the tenant for the purposes of the test (above)
- the landlord could not argue a legitimate interest as it was claiming a legitimate interest in the non-performance of the tenant’s obligations
- any breach was qualified as any trivial breach.
The higher rent due following the rent review would be due with retrospective effect, in addition to other remedies available to the landlord, and the consequence of the rent increasing was wholly disproportionate to the breach of late rent. It was therefore held that the obligation to pay higher rent from the commencement date of the lease was a penalty and the side letter was thus still valid and binding, its purported termination being inherently penal in nature.
Vivienne Westwood Ltd v. Conduit Street Development Ltd [2017] EWHC 350 (Ch)
April 2017
4. A lien on what might have been
A Nottingham based company obtained planning permission to build student accommodation (including some retail units) on a site that it owned. Despite agreements for lease being exchanged in respect of the majority of the flats, the company went into liquidation prior to construction commencing having taken deposits of just over £3.2 million. The liquidators of the company were able to sell the site for £1.1 million.
The claimant purchasers claimed that they held an equitable lien over the site on the terms of their contracts and monies paid, a positive outcome crucially meaning that they would rank as secured creditors in the liquidation, the company having no further assets for disposal. The case thus turned on whether (i) such liens could exist over something on which construction had not taken place; and (ii) given the apartment block plans, to what proportion of the land did each lien attach. The defendant liquidators argued that if the liens did exist then they were unenforceable as specific performance on exchanged contracts was impossible where the subject had not been completed and the requisite leases never signed.
The court found that it was not necessary for the legal estate contracted for to exist as buyer's liens are not dependant on specific performance, and the relevant lien attaches to the land which was subject of the contract. In this instance, the subject was the legal estate in the air space that would have been occupied on construction. Accordingly, each buyer had separate airspace and was entitled to a share of the £1.1 million sale proceeds.
The court had to identify which parts of the site were not part of the buyers' liens and it was very important that the sale contracts in question identified specific land (floor plans) for each buyer that would be transferred.
It is usual to take out insurance in the purchase of off-plan developments and, though this had happened in the instant case, the insurance provider had also gone into liquidation. Naturally, despite a lien being present, there is no guarantee that there will be enough money available to fully compensate such secured creditors.
Eason v Wong [2017] EWHC 209 (Ch)
May 2017
5. Ancillary use and the extent of easements
The claimant's property enjoyed a right of way over the driveway of the defendant’s property (from which they ran a business) for loading and unloading.
Due to obstructions in the driveway which prevented the claimant from reaching a garage, he was granted an injunction which stopped the obstruction of vehicular access to the garage. The injunction was caveated by an allowance of 20 minutes for stoppages for loading and unloading for the defendant’s business. Damages and special damages were also awarded in respect of lost rent for the early termination of the tenancy of the claimant's property, due to past obstructions, and the defendant had to pay the claimant's costs.
On appeal, the trial judge's finding that the use of the garage was ancillary to the use and enjoyment of the claimant’s property (falling within the scope of the grant of the right of way) was upheld. Importantly the court clarified the distinction that had often been drawn in "passing through" cases (Harris v Flower & Sons (1905) 74 L.J. Ch. 127) where the dominant land owner wishes to access the dominant land via the easement, onto other land; as compared to “passing alongside” cases where access is to be direct from the servient land to the non-dominant land. Such distinction was held to have no significance.
Following Harris v Flower & Sons, the differences in the scenarios were simply facts to be taken into account in determining whether the original grant of a right could be said to have been consented to by the original servient owner.
On the subject of costs, despite the fact that the claim brought was purely economic, the claimant’s refusal to consider a mediation offer was not penalised by the courts. The claimant had reasoned that the law was too complex and any related financial award would need assessment by reference to the law. Patten LJ was keen to emphasise that a failure to engage in mediation, even if unreasonable, would not always automatically result in a costs penalty.
Gore v. Naheed and Ahmed [2017] EWCA Civ 369
June 2017
6. The presumption of use
The claimant workshop owners claimed a vehicular right of way over a part of land belonging to the defendants. As the proposed use had not continued until the time of the dispute, the claimants were unable to satisfy the requirements of Section 4 of the Prescription Act 1832 and they applied to register the right of way as a prescriptive right on the principle of lost modern grant. The application was resisted by the defendants.
The claimants took the application to the tribunal and were able to adduce evidence of vehicular access on the land for a 50 year period, ending prior to the application in 2012. The judge accepted the evidence (over 20 years use), whilst refusing the grant of an easement on the basis that the claimant could only prove use without permission for 10 years. Her decision was based on a right of way by prescription having to establish a user as of right, ie:
- without force
- openly
- without consent.
On appeal, the Upper Tribunal considered the legal burden of proof for as of right. Though this lay on the claimant (in attempting to establish the easement) it was noted that there was a separate line of legal authority supporting a presumption of an earlier grant being created where a claimant to an easement could prove open use for the required period. Such presumption could not be rebutted by proof that there had not been an actual grant prior to the commencement of a use.
Having provided evidence of open use for the requisite period without interruption, the claimants had the benefit of an evidential presumption that such use was as of right. It was held that as the defendants had not produced any evidence to show the use was not by consent or force the claimants had discharged the legal burden and the appeal was allowed.
Taking the application back to the Land Registry, the Upper Tribunal also provided example wording for entry of such a right of way (acquired by prescription) on the register, as follows:
“The extent of this right, having been acquired by prescription, may be limited by the nature of the user from which it has arisen which was use for the purposes of access to and egress from the dominant tenement when being used as a joinery workshop”.
Welford v. Graham [2017] UKUT 297 (TCC)
July 2017
7. Succeeding under Ground (f) of the 1954 Act
The tenant held separate underleases for a textile dealership and consultancy and operated from a ground floor area and basement (principal underlease) and storage area (supplemental underlease). The Landlord utilised the remainder of the building as a luxury hotel.
With both leases coming to an end, the tenant served notices on the landlord under Section 26 of the Landlord and Tenant Act 1954, requesting new leases. The landlord’s counter notice opposed renewed tenancies on the grounds of intention to demolish or reconstruct…to carry out substantial works of construction on the holding of part thereof (LTA 1954 s.30(1)(f)). It was clear and admitted by the landlord that some elements of the intended work were a fiction to meet the criteria of the legislation and, in finding for the landlord at first instance, the landlord provided an undertaking to do the work as soon as vacant possession was obtained.
The works were expensive and served no practical purpose and the tenant appealed on nine grounds. The appeal was dismissed and sent back to the trial judge on the issue of "reasonable time" to carry out such works. However, in considering whether there was sufficient intention by the landlord to carry out the works, the court noted that there were no anti-avoidance provisions in the LTA 1954. The tenant’s argument that it cannot have been the intention of Parliament to remove the protection of the LTA 1954 for tenants in such scenarios, was rejected on the basis that the landlord’s decision was conditional only in the sense that the decision-making process had to reflect the real world, namely that the tenant was adamant that it was staying put. Under Ground (f), motive was irrelevant to the issue, the section requiring an examination of what the landlord intended to do and not why he intended to do it.
In addition, the tenant attempted to utilise a widely drafted right of entry clause in the tenancy agreement to thwart the landlord. Though the argument that if the landlord's proposed works could be undertaken pursuant to the right of entry then Ground (f) could not be established, failed, it told a tale of how desirable the property was and how far an argument could stretch if both parties desperately wanted their own way and were well represented.
S Franses Ltd v. Cavendish Hotel (London) Ltd [2017] EWHC 1670 (QB)
August 2017
8. Calling time on overage
The claimant seller entered into an option agreement with the defendant buyer, granting an option for the purchase of the seller’s land for residential development. The agreement required the buyer, within three years of the date of the agreement, to use all reasonable endeavours to obtain planning permission for the development of eight new houses. Once planning permission was obtained it was stipulated that, upon exercise of the option, the buyer had to proceed with development as soon as practicable. Part of the minimum total payment under the contract (£700,000) was an overage payment on an agreed formula, triggered by the sale of any of the newly constructed houses.
Planning permission was obtained and eight new houses built, but the buyer then moved into occupation of one of the houses himself, renting the others on assured shorthold tenancies. There had been no sale and the buyer thus argued that no overage payment was due under the contract. The court was asked to decide whether the agreement contained an implied term which required the buyer of the land in question to sell the newly constructed dwellings on the land within a reasonable period of time.
Despite the buyer’s argument that in the absence of an express term, he was not obliged to sell any of the houses until he, in his discretion, decided to, the court preferred the reasoning of the seller, that such an interpretation of the agreement undermined the entire commercial purpose of the option agreement. Both parties were businessmen and the seller was in the process of retiring, it being his intention to use the sale proceeds from the development as a pension. The court considered that the buyer must have known this and the obligations in the contract ((1) and (2) below) were premised on efforts being carried out as soon as possible, based on the realisation of the value of the development, including paying the overage triggered by the sale of one of the houses:
- The buyer was under an obligation during the life of the option to obtain planning permission for development.
- Upon exercise of the option, completing the sale contract, the buyer had to begin construction as soon as practicable.
The court decided that a term to the effect of reasonable time should be implied as it was necessary to give business efficacy to the agreement, and without it the option agreement lacked commercial coherence. Such term had accordingly been breached the remedy of specific performance in favour of the seller obliged the buyer to sell.
It is worth noting that each case involving in implied terms will turn on its facts and this may have been decided differently were it not for the position of the seller (and the buyer's knowledge) and the specific terms of the option agreement.
Sparks v. Biden [2017] EWHC 1994 (CH)
September 2017
9. The limitations of proprietary estoppel
In 2016, the defendant had granted the claimant’s predecessor company a licence to occupy an industrial unit for one year. The licence was subject to a 30 day notice provision for termination/possession. The claimant, which had the same sole director and shareholder as its predecessor, negotiated a new licence for the premises with the defendant on the same terms. The claimant claimed that this was based on a representation by the defendant that it would not terminate the licence prior to the end of its term if the claimant complied with the licence requirements.
The defendant served notice to quit on the claimant six days after completion of the licence causing the claimant to apply for an injunction based on proprietary estoppel. The defendant argued that estoppel could not apply as the claimant was a licensee and had no legal interest in the land, however, an interim injunction was granted.
Relying on Thorner v. Major [2009] UKHL 18, the court held that, though there was an argument for a serious issue to be tried, proprietary estoppel related to an interest in land and not merely a contractual right. The claimant had not suffered any detriment as it had had no right to trade from the premises prior to the grant of the licence and under the licence, its argument was limited to an objection that it should not be prevented utilising a valuable right (trading from the premises) without cause on 30 days' notice.
Further, the losses claimed by the claimant were for profits and damages would thus be an adequate remedy, meaning an injunction should be refused. Under the circumstances there was no serious issue to try or reason for the interim injunction to be continued.
West End Commercial Ltd v. London Trocadero (2015) LLP [2017] EWHC 2175 (Ch);
October 2017
10. Declaratory relief and the enforceability of restrictive covenants
As with many large houses in the early 20th century, the properties in this dispute were detached houses which had formed part of a large estate prior to sub-division. The conveyances contained restrictive covenants by purchasers not to erect houses other than dwelling houses and to restrict the number of houses built on each plot; these were mirrored by the vendor on the retained land.
The claimant obtained planning permission to build a residential care home (in place of three houses) and, although the covenants had not been registered against any of the defendant's titles on neighbouring plots, the defendant claimed that the restrictive covenants continued to bind the claimant's properties and were enforceable.
While the claimant accepted that if such covenants were enforceable, construction of this care home would be in breach, he argued that:
- the defendants’ predecessors in title had built more than the requisite number of houses on some plots and these breaches deprived the defendants of the right to enforce purchaser covenants; and/or
- such predecessors in title had permitted changes against the wording of the restrictive covenants in “preserving… the residential character of the neighbourhood at high quality", meaning the covenants had ceased to have some or all practical effect and were worthless.
The claimant developer sought relief in the form of a declaration under the court’s inherent statutory remit in Section 84(2) of the Landlord and Property Act 1925.
The court, in considering the point on number of houses, held that the covenant had been breached, but was not broken at every moment thereafter for a failure to remove additional houses. The defendants themselves had not breached this covenant and were thus not disentitled on enforcing the covenant by the conduct of their predecessors in title. It further rejected any advancement under the Halsall doctrine, confining its use to positive covenants only.
Accordingly, the covenant still had value despite the past breaches. They continued to affect the land of the claimant and were in principle enforceable by any of the defendants.
It is worth noting that this case resolved a dispute prior to development and additional cost. The judge also provided interesting commentary to the effect that in the context of property law, the consideration was the property rights that were transferred. Since a restrictive covenant created an interest in land, once that restrictive covenant right was set up, the property interest passed and the consideration was given once and for all.
Signature of St Albans (Property) Guernsey Ltd v. Wragg and others [2017] EWHC 2352 (Ch)
November 2017
11. Light – no reason to limit encroachment
The defendant owned the freehold reversion of a block of flats, with the claimant as headlessee, and both parties considered that they enjoyed a right of light from windows in the block asserted by prescription (Section 3 of the Prescription Act 1832). A third party proposed to develop a site containing two buildings between 3 and 15 floors high directly opposite the block and both parties agreed that this would lead to an interference with any right to light enjoyed by the block. The prescriptive right did not exist at the time the headlease was granted, coming into existence 20 years after the installation of the windows facing the development site.
The claimant headlessee sought a declaration that it could release its right to light in exchange for compensation. The defendant argued that this was in breach of the headlease which prevented the headlessee from providing:
“permission for any new window light opening doorway path passage drain or other encroachment to be made nor to permit any easement to be acquired upon or against the demised premises which might be or grow to the damage annoyance or inconvenience of the Landlord…”
The clause also obliged the headlessee "to adopt such means as may be reasonably required or deemed proper for preventing the making of such encroachment".
The court refused the declaration. Though the right to light did not exist at the time the headlease was granted, there was clear authority for the concept that, in using the acts of a tenant to support a prescriptive right, the right will belong to the freehold interest. The definition of Demised Premises in the headlease incorporated incorporeal hereditaments and thus the right to light formed part of the demised premises, and should be treated as demising to the headlessee under the headlease (and contemporaneously).
Physical entry as a requirement for encroachment was rejected by the court and it was held that the ordinary meaning of encroachment extended to an interference with a right. As the right to light was included under the definition of demised premises, if the building of the new development resulted in an actionable interference with the right of light enjoyed by the block, it would constitute an encroachment to the right of light (and therefore on the demised premises).
The court reasoned any release by the claimant on the infringement of the right to light would grow to the damage of the defendant. The right to light would be diminished and if allowed to continue for a considerable period (ie one year or more) it would result in any claim by the freeholder being limited to that lesser right to light and result in either the right being extinguished or would remove the ability of the landlord to obtain an injunction requiring the removal of the new building. This was qualified by the court in stating that if the freeholder released its right of light, no breach would be committed by the headlessee subsequently releasing the right of light appurtenant to the headlease.
Metropolitan Housing Trust Limited v. RMC FH Co Limited [2017] EWHC 2609 (Ch)