Landlord and Tenant Digest Volume 21 (3)

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Commercial Update

Places of Worship (Enfranchisement) Act 1920

Trustees of the K&M Wholesale Suppliers Ltd Retirement Benefit Scheme v Meadowhead Christian Fellowship [2016] UKUT 31 (LC)

The Places of Worship (Enfranchisement) Act 1920 gives to trustees of churches, chapels, and other buildings used for public worship the right to purchase the freehold reversionary interest. In this unusual case the Act was used to acquire the freehold of premises formerly used as a supermarket. The tenant, with the landlords' consent, converted the property into a place of worship for use as a religious meeting hall. The decision relates to the calculation of compensation under the Land Compensation Act 1961 and the award of costs.

Penalty

Vivienne Westwood Ltd v Conduit Street Development Ltd [2017] EWHC 350 (Ch)

The tenant of retail premises challenged sums demanded as a result of a rent review. The tenant argued either that there was a binding compromise of the rent review at a low figure or that the rent should be capped at that low figure on the basis of an agreement capping the rent contained in a side letter. The side letter made provision for the lessor to terminate that capping agreement in the event of any breach of the terms of the side letter, in which case the tenant would have to pay additional rent for all the preceding years of the term that had passed, as well as paying it for the future. The landlord argued that there had been a breach in June 2015 when the tenant failed to pay rent and therefore that the capping provisions were no longer operative. The tenant argued that the obligation to pay rent at a higher rate was penal in nature. The deputy judge held that there had been no compromise but that the obligation to pay a higher rent was penal in view of the fact that it was triggered by any breach however minor and in view of the fact that it operated retrospectively.

Asbestos - misrepresentation

First Tower Trustees Ltd v CDS (Superstores International) Ltd

The tenant of warehouse premises sued the landlord for the cost of remedial works to remove asbestos and of alternative warehouse accommodation whilst those works were carried out on the basis that the landlord had misrepresented to the tenant in replies to pre-contract enquiries, that it had no knowledge of any environmental problems affecting the property. In reply to enquiries the landlord had replied that it was not aware of any problems with asbestos but that the tenant must satisfy itself as to the condition of the premises. By the time of completion the landlord was aware of the problem with asbestos and that reply was materially false. The landlord relied on an exclusion clause but the judge held that it was too widely worded and in the context was highly unreasonable as it would mean the tenant could not rely on the replies to the pre-contract enquiries.

Terminal dilapidations

Car Giant Ltd v Hammersmith and Fulham LBC [2017] EWHC 197 (TCC)

The TCC assessed the damages payable on a claim brought by the landlord of 39 units used as light industrial units or warehouses. The cost of repair was agreed. The issue was the extent of the diminution in value. Some works of repair had been carried out. Others had not been. There was no explanation why they had not been carried out some six years after the date of termination. The judge noted that failure to carry out repair works could be an indication that the repairs were not necessary, Latimer v Carney [2006] EWCA Civ 1417 considered. The judge held that the fact that the units had been let at a market rent suggested that the outstanding works were minor or unimportant and that there was accordingly no further diminution in value over and above the cost of the works already carried out.

Section 26 notices

Fast Drinks Ltd v Cetyl International Group Inc [2016] EWHC 3501 (QB)

A sub-tenant’s lease expired on 15th January 2016.  Prior to that termination date, the head lessor exercised a break clause bringing all derivative interests to an end on 17th July 2014.  The sub-tenant’s lease however continued under the 1954 Act and between the notice of break and actual break, the sub-tenant served a s.26 notice on the head lessor claiming a new lease, with the date of commencement of the new lease being 1st July 2015.  The head lessor served a s.25 notice with a commencement date of 30th March 2015.  The tenant issued their application for a new lease on 17th April 2015.  The issue was whether the s.26 was valid, in which case the application had been brought in time, if not, then the tenant was out of time. 

Section 26(2) provides for the s.26 notice to provide a date for the commencement of the new tenancy, being a date that is not more than 12 nor less than 6 months after the making of the request ‘Provided that the said date shall not be earlier than the date on which, apart from this Act, the current tenancy would come to an end by effluxion of time or could be brought to an end by notice to quit given by the tenant.’

The head lessor argued that the relevant date was the date on which the lease would have come to an end by effluxion of time; i.e. 15th January 2016 and therefore the s.26 was bad.  The tenant argued that given the circumstances of this case, in particular the exercise of the break in the head lease, the proviso did not apply and therefore the notice was good.

Morris J agreed with the tenant:

‘The proviso is there in order to cover the case where, but for the proviso, it might otherwise be possible to have a start date for the claimed new tenancy earlier than the effluxion date of the current tenancy. But not where that is not possible.

It follows from this analysis that there are circumstances where the proviso to section 26(2) does not apply at all.’

Assignment

TCG Pubs Ltd (In administration) v The Master and Wardens or Governors of the Art of Mystery of the Girdlers of London [2017] EWHC 772 (ch)

 A number of issues arose in TCG’s attempt to assign its term.  The lease provided that before seeking consent to assignment, such consent not to be unreasonably withheld, the tenant had first to ‘grant an option’ to the landlord to take the term.  The first issue was the meaning of the term ‘grant an option’, TCG argued that it did not mean a formal grant of an option but simply giving notice.  Mann J did not agree, the wording was more consistent with a formal option.  That construction led to the second difficulty.  The lease had been granted prior to the Law of Property (Miscellaneous Provisions) Act 1989.  That Act required any option, being the grant of an interest in land, to be signed by both parties.  Mann J considered that this obstacle was overcome by the tenant proffering an option for the landlord to sign.  If they did not, then the tenant had discharged their obligations and could move onto seek consent to assign to a third party.  That was enough to dispose of the case as the tenant had not proffered an option but had simply given notice. 

Further, when the request to assign to a third party was made, it was made by the intended assignee.  Although the assignee had the authority of the tenant to make that request, that was not notified to the landlord and accordingly the request was not a valid application. 

Another issue arose as to whether consent had been unreasonably withheld.  The landlord had required a rent deposit as a condition of assignment.  The lease permitted the imposition of a guarantee as a condition of assignment.  Whilst the landlord conceded that the status of the intended assignee rendered a rent deposit unnecessary, then relied on the ability to insist on a guarantee as justifying the requirement of a rent deposit.  Mann J considered that the requirement in the lease for a guarantee was not of itself subject to any test of reasonableness, but was ‘a valid gateway before one gets to considering conditions for obtaining permission to assign.  The landlord is entitled to insist on it.  As such its validity is not tested by reasonableness’ (para 108).  However, it was too late for the landlord to rely on it after it had refused consent and it did not justify the requirement of a rent deposit.

Protection of the 1954 Act

Michael v Phillips [2017] EWHC 614 (QB)

Where a company had exclusive possession of premises and ran its business from there, paying rent quarterly, it was entitled to a declaration that it had the protection of Part II of the Landlord and Tenant Act 1954.

Residential Update

Notices – consequences of non-compliance

Elim Court RTM Co Ltd v Avon Freeholds Ltd [2017] EWCA Civ 89

The consequence of non-compliance with statutory requirements as to the contents of a notice was a matter of statutory construction. The intention of the legislature as to the consequences of non-compliance with the statutory procedures was to be ascertained in the light of the statutory scheme as a whole (Natt v Osman [2014] EWCA Civ 1520 followed). The mistakes in this case were too trivial to suppose that Parliament would have intended invalidity to follow.

Service charges

Oliver v Sheffield City Council [2017] EWCA Civ 225

As a matter of construction, the service charge provisions of the lease in question did not permit the landlord to double recovery of costs.  Where they received funding for part of the service charge works from third party grants, they could not also recover those costs under the service charge. 

In this case, that meant a consideration of whether the apportionment of the service charge levied on the tenant was fair.  The apportionment, in disregarding the grant had not been fair.  Some consideration needed to be given as to when it was permissible for a tribunal to determine what the correct apportionment should be.    

“…it becomes necessary for this court to decide whether the Windermere and, more importantly, Gater cases were rightly decided, in treating the apportionment carried out by the Lessor's Surveyor or (here) the Council's appointed officer, as irrelevant.

In my view those cases were rightly decided, for the reasons given by the Upper Tribunal in each of them, to which I have already referred. The Upper Tribunal was careful in both those cases to distinguish between a situation where the determination was to be carried out in a prescribed manner (for example by a person with discretion as to the result), and a situation where a particular determination was the only possible consequence of the application of an agreed formula. The former provision falls foul of s.27A(6) , whereas the latter does not, because the precise amount to be paid has been determined by the parties' agreement: see s.27A(4)(a) .

In my judgment the Upper Tribunal was right to say in the Gater case that for this purpose it mattered not whether the provision that the determination be carried out in a particular way or by a particular person was expressed to be final and binding. The avoidance of such provisions is not expressed in subsection (6) to be dependent upon the presence of such an express provision. It is void wherever it would otherwise be of contractually determinative effect.”

Generally, long leases would be interpreted so as to guard against double recovery.  The parties to the lease would not be considered to have agreed that double recovery was intended.

Firstport Property Service Ltd v Ahmet [2017] UKUT 36 (LC)

In 1997, Laing Homes Ltd entered into an agreement to purchase and develop the Langley Park Estate. Before completion, Laing entered into an agreement with Noel and Danielle Faulkner to hold three parcels of the land on trust with the intention that they would be sold to the Faulkners on completion. In 1998, the purchase was completed and the three parcels of land were transferred to the Faulkners. Mrs Ahmet applied under s.27A, Landlord and Tenant Act 1985, for a determination of liability to pay and reasonableness of service charges for 2009-2014, arguing that it was unreasonable for the owners of the 218 Laing dwellings to pay all of the estate costs when the owners of the 13 Faulkner dwellings, who enjoyed the same communal facilities, made no contribution. On the proper construction of the lease the “Development” did not include the Faulkner site and the tenants had to pay 1/218th of the costs relating to the site excluding costs referable to the Faulkner site.

Bretby Hall Management Co Ltd v Pratt [2017] UKUT 70 (LC)

In this case the lease allowed the manager to recover “any legal or other costs reasonably and properly incurred by the Manager and otherwise not recovered in taking or defending proceedings (including any arbitration) arising out of any lease of any part of the Development”. On the proper construction of the lease the Upper Tribunal held that these words were wide enough to include the costs of legal proceedings which had been merely threatened.

Jetha v Basildon Court Residents Company Limited [2017] UKUT 58 (LC)

In this case the obligation on the tenants to pay an interim service charge and a contribution to the sinking fund was subject to a condition precedent that there was prior approval by a majority at an AGM. The Upper Tribunal upheld the decision of the FTT that on the facts there had been no prior approval but quashed the finding of the FTT that the tenants were still obliged to pay on the basis of estoppel by convention. Recent service charges cases where estoppel by convention has been successfully relied on to remedy non-compliance were distinguished. In this case it was impossible to ascertain a common assumption.

Patrick Brian Matier v Christchurch Gardens (Epsom) Ltd [2017] UKUT 56 (LC)

The FTT granted an application for costs made by the landlord under rule 13(1)(b) of the Property Chamber Rules 2013 on the grounds that the tenant had acted unreasonably in the conduct of the proceedings. The FTT relied inter alia on the prolixity of the tenant’s written submissions. The Upper Tribunal upheld the decision of the FTT.

Southwark Council v Various Lessees of the St Saviours Estate [2017] UKUT 10 (LC)

The Council were unable to recover service charges from leaseholders as they had failed to prove disrepair at the tribunal.  Their evidence had been that doors had been replaced and had therefore fallen below the original fire resistance standard and where therefore out of repair.  The Upper Tribunal did not consider that evidence of door replacement was, of itself, sufficient to lead to a conclusion that the doors fell below the original standard and where therefore out of repair. 

Primeview Developments Ltd v Ahmed [2017] UKUT 57 (LC)

A landlord had been entitled to recover some of their costs of a service charge dispute through the service charge.  Further the tribunal had been wrong to award rule 13 costs against the landlord on the basis that it had tried to secure agreement prior to the hearing to oust their jurisdiction.  The landlord had not been unreasonable in its refusal to mediate as the chances of settlement were slim and it would have been a costly exercise.  

Enfranchisement

Clifton v Liverpool City Council [2017] UKUT 74 (LC)

For the purposes of the low rent test under the Leasehold Reform Act 1967 it is necessary to determine the “appropriate day”. The appropriate day is March 23 1965 unless the house in question fails to fulfil one of the following three conditions: (1) it is a hereditament for which a rateable value other than nil was shown in the rating valuation list in force on that date; or (2) it forms part of such a hereditament; or (3) it consists of or forms part of two or more such hereditaments. In order to displace the date of an earlier entry in the valuation list as the "appropriate day", it was necessary to establish both (a) a substantial change in the identity of the hereditament and (b) that that new entity had been re-rated and included in the valuation list. In this case the tenant had failed to show that the premises had been re-rated after the works relied upon. Further the judge found that the conversion of a property comprising two residential units into a single house did not constitute a substantial change in the identity of the hereditament Griffiths v Birmingham City District Council [1987] CLYB 2172 considered.

Salehabady v Eyre Estate Trustees [2017] UKUT 60 (LC)

In this case an application under s. 48 (1) LRHUDA 1993 had to be “made” by 21st April 2016. The application was posted on 18th April 2016 but not received until 9th May 2016. The FTT declined jurisdiction. Rule 26 (1) The Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 states that “An applicant must start proceedings before the Tribunal by sending or delivering to the Tribunal a notice of application.” HHJ Behrens held as follows:

“the word “ made” in s 48(2) looks to a unilateral act by the applicant. In my view the applicant makes the application by starting the proceedings. I also agree that rule 26(1) provides two methods for starting proceedings – by sending or delivering a notice of application to the FTT. It follows in my view that either of those acts is effective to start the proceedings. Thus the posting of a correctly addressed (and sufficiently stamped) notice of application to the FTT is sufficient to start the proceedings. Thus I agree that the relevant date is the date of posting. This is so even if the application notice is delayed in the post or does not arrive. Provided it is posted to the FTT proceedings have been started.”

Secure Tenancies

R (on the application of Turley) v Wandsworth LBC [2017] EWCA Civ 189

The local authority had been entitled to refuse T succession rights.  She had resided in a property let to her ex-partner, with their two children.  Their relationship had broken down and he had moved out in 2010 and died in 2012.  The Housing Act 1985 provided that family members could succeed where they had resided with the tenant for the 12 month period leading up to death.  T had not satisfied that requirement. 

Dove v Havering [2017] EWCA Civ 156

Neither joint tenant had been residing at the property as their principal residence when a notice to quit was served and took effect and therefore the local authority was entitled to possession without the need to prove a statutory ground.

Introductory Tenancies

Islington v Dyer [2017] EWCA Civ 150

The information required in a s.128 notice could be properly constituted in more than one document.