Landlord and Tenant Digest Volume 21 (5)

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Commercial Update

Implied terms, fraudulent representations and rescission for mistake

Co-operative Bank Plc v Hayes Freehold Ltd  [2017] EWHC 1820 (Ch)

Deutsche Bank, as tenant, granted an under lease to Sentrum the liabilities of which were guaranteed by Holdings.  A subsequent sale of the freehold meant that the freeholder and sub-tenant were part of the same group.

By a deed, the head lease, under lease and guarantee were unconditionally and irrevocably surrendered and released. 

However, the surrender of the head lease was ineffective due to an agreement, by way of headlease charge, that no surrender would be permitted without the consent of the Co-Operative Bank; they did not consent to the surrender of the headlease.    Had the title to the freehold been scrutinised this impediment to the surrender would have been apparent.  In effect, Deutsche Bank remained a tenant with rental liability and without anyone to pass that liability onto.  In an attempt to unshackle themselves from that predicament, they raised a number of arguments, all of which failed.

Firstly, they contended that the release of the guarantor was subject to an implied condition precedent that the headlease was surrendered.  Following M&S v. Paribas [2016] AC 742, the court rejected that argument; there was no basis for implying such a condition.  The construction of the deed was unambiguous and stated that the release was unconditional.  That was an express term.  It could not be overridden by an implied one. 

Secondly, they contended there was an implied fraudulent misrepresentation in relation to the requirement for consent to the surrender.  They asserted that by proffering the surrender documents, it was implied representation that they had the ability to surrender. The Court rejected that there was any representation to that effect.  The documents had been offered on the understanding that they would be checked by Deutsche Bank’s lawyers.  Further, the documents were silent as to whether consent had been obtained. 

Thirdly, they relied on unilateral mistake.  Part of this claim was reliant on the fact that there had been no consideration for the release of the guarantor.  However, as the Court pointed out, there had, in that the under lease had been surrendered and so their obligations under that lease had been removed.  In any event, the Court considered that the mistake was that of Deutsche Bank’s own lawyers who had failed to appreciate the requirement of consent to the surrender.

Fourthly, they relied on mutual mistake and finally on unjust enrichment.  The Court did not consider that on the facts there was a mutual mistake and there was no unjust enrichment when a guarantor was released in circumstances where the parties had expressly agreed to do just that.

Business tenancies

S'Franses Ltd v The Cavendish Hotel (London) Ltd [2017] EWHC 1670 (QB)

In the context of a contested lease renewal claim the landlord’s intention to carry out works was sufficient for the purposes of s. 30 (1) (f), notwithstanding that the intention was conditional. It did not matter that the landlord would not have intended to carry out the works if the tenant had left or was going to vacate the premises voluntarily, because at the date of the hearing the tenant intended to remain. The motive of the landlord in forming that intention was irrelevant so long as the intention was genuine. However, the judge below had applied the wrong legal test in holding that a reasonable time for commencing the works was within 12 months of obtaining vacant possession.

Residential Update

Leasehold Enfranchisement

Re Elmbirch Properties Plc

The Upper Tribunal ruled in two conjoined appeals on five valuation matters. First, the Midlands FTT had been wrong to disregard the agreement of both experts that the value of the extended lease should be increased by 1% to arrive at a freehold equivalent.  Second, the FTT was wrong in principle to refuse to make an adjustment to values derived from real world comparables to reflect the statutory assumption that the diminution in the value of the landlord's interest is to be derived from an assumed sale of the existing and extended leases without the benefit of the rights conferred by the Act. Third, the FTT was wrong in principle to determine the value of the extended lease of one of the two properties in question by adjusting the value of the current lease using a relativity derived from the LEASE graph, rather than by relying on evidence of market activity. Fourth, the FTT was wrong in principle to treat the sale of the other property with the benefit of a section 42 notice as unreliable evidence of the current lease value. Fifth, the FTT was wrong in principle to decline to adjust the sale price of a good comparable by reference to the Land Registry index.

John Lyon’s Charity v London Sephardi Trust [2017] EWCA Civ 846 (CA)

The tenant of a house who had extended the lease under the 1967 Act prior to 5th March 1986 and who subsequently sought to acquire the freehold was entitled to a valuation of the freehold interest under s. 9 (1A) on the favourable assumption that the vendor was selling for an estate in fee simple subject to the extended lease.

Parkes v Wilkes [2017] EWHC 1556

In this dispute two co-owners had acquired the freehold of the building containing their flats under the Leasehold Reform, Housing and Urban Development Act 1993. Subsequently they had fallen out over the grant of a 999 year lease to the claimant. The claimant applied to court under s. 14 Trusts of Land and Appointment of Trustees Act 1996 seeking an order requiring his co-trustee to co-operate in the grant to him of a 999 year lease of his flat at a peppercorn rent. The court accepted it had jurisdiction to make such an order but declined to do so on the basis that there was insufficient evidence that the parties had agreed to the grant of such a lease after enfranchisement.

Clarise Properties Ltd v Rees [2017] EWCA Civ 1135

In the context of a  claim to acquire the freehold interest in a house under the Leasehold Reform Act 1967, the Court of Appeal had to construe the rent review provisions of the lease of the house. The parties had been unable to agree the capitalised value of the rental stream due to disagreement over the meaning of the rent review provisions. The Court of Appeal held that the Upper Tribunal had properly construed the meaning of therent review clause. "Open market letting value" referred to the highest ground rent a purchaser in the hypothetical open market would be willing to pay to acquire a lease of the land on the assumption that the land was a vacant site with planning permission for residential development.

Assethold Ltd v 110 Boulevard RTM Co Ltd [2017] UKUT 316 (LC)

A copy of a notice of claim to acquire the right to manage could for the purposes of s. 79 (8) Commonhold and Leasehold Reform Act 2002 be served on the qualifying tenants by email.

Curzon v Wolstenholme [2017] EWCA Civ 1098

Where a landlord had sought to avoid the effect of an initial notice served under s. 13 Leasehold Reform, Housing and Urban Development Act 1993 by transferring the freehold of the premises first to his wife and then back to himself, the Upper Tribunal had been right to find that the transfer to his wife defeated the notice but wrong to hold that the notice became binding on him when the freehold was transferred back to him.

Service charges

Skelton v DBS Homes (Kings Hill) Ltd

The lease held by Mr Skelton provided the machinery for payment of the service charge required service of both a demand and an “estimate”. HHJ Huskinson held that the demand for payment of the service charge was valid from the date on which the estimate was served, but that the demand did not have to be served with the estimate. Under s. 20B (1) Landlord and Tenant Act 1985 costs incurred more than 18 months prior to a demand are not recoverable. In this case more than eighteen months had passed between the incurring of the costs and the demand being both served and becoming effective, but the judge held that s. 20B did not apply to a demand for payment of estimated service charges on account of costs to be incurred in the future (an “on-account demand”).  The Court of Appeal held that it is clear from the definition of “service charge” in section 18 that section 20B applies to service charges in respect of costs to be incurred as much as costs that have been incurred.

“Section 20B did not apply where the tenants made on-account payments of their service charges, the landlord’s actual expenditure did not exceed the estimated amount on which the service charges were based and the landlord did not serve any further demand on the tenant.  There was then no “demand for payment” after the incurring of costs to which section 20B could apply.  But that reasoning does not assist in this case because the demand was only validly served after the costs were incurred.”

Landlord’s duty of care

Lugay v Hammersmith and Fulham LBC [2017] EWHC 1823 (QB)

Hammersmith owed its tenant a duty to take reasonable care to ensure they were not exposed to a foreseeable risk of injury; in this case asbestos injury.  Where asbestos was present in property that Hammersmith let, they had a duty to take reasonable steps to avoid injury occurring from asbestos and to reduce the risk of exposure so that it was as low as practicable.  This did not extend to having to remove all the asbestos.  In this case, the Claimant failed to establish causation.  

Natural Justice

Southern Land Securities v Poole [2017] UKUT 302 (LC)

In the course of a hearing of an application for the determination of the payability of service charges, the Tribunal raised and dealt with a new point on statutory consultation and found against the landlord, thereby limiting its claim.  An appeal was allowed as even if the Tribunal were right to have entertained a point first raised at the hearing, they should have given the parties adequate time to deal with it and adduce evidence in relation to it.  In fact the Tribunal had refused the landlord an adjournment.

Scope of protection of residential service charge legislation

JLK Ltd v Ezekwe [2017] UKUT 277 (LC)

Student ‘pod’ accommodation without any cooking facilities and shared use of bathroom and toilet facilities was still a ‘dwelling’ for the purposes of the Landlord and Tenant Act 1985 and so the Tribunal had jurisdiction to determine whether service charges were payable. 

Transfer to the High Court for eviction

Partridge v Gupta [2017] EWHC 2110 (QB)

Transfers to the High Court to accelerate the eviction process continue to cause confusion.  In this case, which involved the eviction of an Assured Shorthold Tenant, Foskett J had to consider whether sufficient notice had been given of an application to enforce a warrant under CPR Pt 83.13.  He concluded that this did not require service of the formal notice of application for permission or even a more informal intimation by letter of the date of the application.  All that was required was sufficient notice to enable the occupant to apply for relief.  In the case of a single occupant, it would be sufficient that they had knowledge of a possession order coupled with a requirement to vacate.  Where there were other occupants a letter addressed to ‘the occupants’ setting out the possession order and the requirement to vacate would be sufficient.

Possession and penalties for sub-letting ASTs

Poplar Housing and Regeneration Community Association Ltd v Begum [2017] EWHC 2040 (QB)

The tenants of a registered social landlord had unlawfully sub-let their flat. 

Poplar sought possession on the basis of s15A of the Housing Act 1988.  That provides, that in the case of a social landlord, where a tenant sub-lets their property in breach of an express term prohibiting the same, they cease to be assured and their tenancy can be brought to an end by service of a notice to quit.  The recorder at first instance did not find that this basis for possession had been made out as he considered that the tenant had retained possession of part and therefore retained security. 

They also sought possession on ground 10, 12 and/or 14, being a breach of a term of the tenancy and nuisance.  Whilst the recorder considered that these grounds were made out, they were not sufficient to justify an outright order and a suspended possession order was made.  This was overturned on appeal given the gravity of the breaches and the deception deployed by the tenants and an outright order was made.

Further, the recorder had rejected an application under s.5 of the Prevention of Social Housing Fraud Act 2013 for an unlawful profit order in order to disgorge the tenants of the profit they had made from unlawfully sub-letting.  The recorder had wrongly failed to take into account the fact that the tenants as well as receiving rent from the sub-tenants were also in receipt of housing benefit.  When that was taken into account, it was appropriate to make an unlawful profit order.

This material was first published by Thomson Reuters Professional (UK) Limited in the Landlord and Tenant Review and is reproduced by agreement with the Publishers.