Updates

Case, Legislation and Article Digest – August 2022

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16th August 2022

Compiled by Daniel Dovar and Piers Harrison

Legislation Update

Service Charges

Leasehold Reform (Reasonableness of Service Charges) Bill [HL]

This is a Private Members’ Bill (Starting in the House of Lords) introduced by Baroness Kennedy of Cradley (a director of Generation Rent). It proposes to “amend the Landlord and Tenant Act 1985 to provide for service charges to be reduced where they do not reflect the landlord’s actual costs in providing goods and services; to make fixed service charges subject to reasonableness requirements; to amend the Commonhold and Leasehold Reform Act 2002 to make the same changes”.

The Economic Crime (Transparency and Enforcement) Act 2022

This Act provides for overseas entities (corporations, partnerships or other legal entities) who own or intend to own property in the UK to be registered on a newly formed register, detailing its name, country of origin, registered office and beneficial owners.  Registration must be complete by 31^st January 2023, but from 5^th September 2022 if the entity is not registered then dispositions through HM Land Registry will not be possible.

Smoke and Carbon Monoxide Alarm (Amendment) Regulations 2022

The Amended Regulations will come into force on 1 October 2022. From that date, all relevant landlords must:

1. Ensure at least one smoke alarm is equipped on each storey of their homes where there is a room used as living accommodation. This has been a legal requirement in the private rented sector since 2015.
2. Ensure a carbon monoxide alarm is equipped in any room used as living accommodation which contains a fixed combustion appliance (excluding gas cookers).
3. Ensure smoke alarms and carbon monoxide alarms are repaired or replaced once informed and found that they are faulty.

The regulations apply to all social and private rented tenancies, other than those explicitly excluded in the Schedule to the Regulations. The following tenancies are excluded from the regulations:

 

Commercial Update

Covid Arrears

Bank of New York Mellon (International) Ltd v Cine-UK Ltd [2022] EWCA Civ 1021

Tenants who operated cinemas from their premises sought to avoid paying rent for the periods when they were not lawfully able to operate their business due to Covid lockdowns.  They resisted payment on three grounds: failure of basis; implied term; and a rent cesser clause.  Each of those grounds failed.

On a proper construction of the wording of the clause, the rent cesser clause only applied to physical damage to the premises let making them unfit for occupation or use.  The word ‘damage’ in the clause was not wide enough to encompass financial or non-physical damage, which is the interpretation relied upon by the tenant to argue that it had been engaged when the lockdown provisions caused financial damage to the tenant by prohibiting its business.  In any event, the clause was only engaged where the damage was caused by defined insured risks, which did not include Covid and the lockdowns.

The tenant sought to imply terms: a.) that if the permitted use of the premises became illegal rent would be suspended; and b.) to limit the payment of rent to periods when the premises could be used as a cinema with sufficient attendance levels.  None of these satisfied either the business efficacy test or the obviousness test.  These were detailed documents prepared by lawyers and the implied terms were inconsistent with express terms.  In any event, the leases worked well without the implied terms, with the allocation of risk falling on the tenant if the premises cannot be used for the permitted use.  As for obviousness, it was far from clear that the officious bystander would say ‘of course’.  Indeed, the landlord would point to the defined rent cesser clauses and contend that rent was payable unless those provisions were engaged.

The final ground relied on, failure of basis, itself failed given that the leases were subsisting contracts with many years left to run.  The consideration for the obligation to pay rent was the demise in these cases for a 35 year term, with exclusive possession.  That arrangement remained in place.  The permitted use clause was not a fundamental basis of the lease.  Whilst there could be exceptions to the general rule that a failure of basis could not be made out where there remained in existence and performance of a valid contract, there was no ‘gap’ to be filled in the leases by an unjust enrichment claim.  The leases provided for the allocation of risk and a failure of basis claim would subvert that regime.

 

Notice to Quit

Pile v Pile [2022] EWHC 2036 (ChD)

The Pile brothers held two properties on joint tenancies. Frank Pile wished to terminate the tenancies and have them granted to his company.  Simon Pile sought an injunction to restrain that on the basis that if Frank served a notice to quit, terminating one of his tenancies, he would be in breach of trust.  Simon asserted that the brothers held the properties on trust for themselves and so to terminate for his own commercial gain, would be a breach of that trust.  Zacaroli J, considering Proctor Proctoer [2022] EWHC 1202 (ChD) and Hammersmith v Monk [1992] 1 AC 478, did not consider that the unilateral service of a notice to quit by one joint tenant amounted to a breach of trust.  A periodic tenancy continued for only so long as it was the will of all the joint tenants for it to continue.  Therefore when one no longer wished for it to continue, they could serve a notice to quit.  In the case of a bare trust, imposed by either the Law of Property Act 1925 or the Trusts of Land and Appointment of Trustees Act 1996, the service of a notice to quit fell outside the scope of the trust.  The situation might be different if there the trust arose from different circumstances.

 

Electronic Communications Code

EE Ltd v Stephenson [2022] UKUT180 (LC)

In this case the Tribunal was required to determine the terms of a new lease of a telecommunication site pursuant to paragraph 34 of the Code. The Tribunal determined the disputed terms which related to the terms of the rent review, provision for the installation of an emergency generator in the event that the mains electricity supply failed, provisions permitting equipment to be upgraded, provisions relating to repair and maintenance, a provision relating to an indemnity for the site provider against third party claims (included), terms relating to alienation, a landlord’s redevelopment break clause (included), rent and compensation for being unable to exploit the site for some alternative use (omitted).

 

Residential Update

Recovery of costs

London Borough of Tower Hamlets v Khan [2022] EWCA Civ 831

In this case the landlord sued the tenant for unpaid service charges in the county court, having previously notified the tenant in a letter before action of its intention to issue proceedings and, following judgment, to serve a s. 146 notice.

The matter was transferred to the FTT which gave judgment for the landlord.

The landlord applied to the county court to recover costs under clause 3(9) of the lease or alternatively pursuant to s. 51 SCA 1981. Clause 3(9) was in the following terms

“To pay to the Lessors all costs charges and expenses including Solicitors’ Counsels’ and Surveyors’ costs and fees at any time during the said term incurred by the Lessors in or in contemplation of any proceedings in respect of this Lease under Sections 146 and 147 of the Law of Property Act 1925 or any re-enactment or modification thereof including in particular all such costs charges and expenses of and incidental to the preparation and service of a notice under the said Sections . . .”

The application to the court was made on the basis that the costs incurred were “incidental to” the service of a s. 146 notice. The district judge awarded costs on that basis. The tenant appealed and the circuit judge ordered the appeal to be transferred to the Court of Appeal.

The Court of Appeal held that the costs of the proceedings were not “incidental to” the service of a s. 146 notice given the size of the costs, and the fact that no such notice had ever been served (Contractreal Ltd v Davies [2001] EWCA Civ 928, Freeholders of 69 Marina, St Leonards on Sea v Oram [2011] EWCA Civ 1258 considered). The landlord had not argued below that the costs were incurred “in contemplation” of service of a s. 146 notice and had not served a respondent’s notice seeking to take the point. The landlord was not permitted to take that point and the decision of the district judge to award contractual costs was overturned.

The Court of Appeal permitted the recovery of the costs incurred in the county court under s. 51 SCA 181, but disallowed the costs incurred in the FTT, preferring the reasoning and decision of Martin Rodger QC, sitting as a County Court judge in John Romans Park Homes Ltd v Hancock, 17 October 2019, unreported, to the decision of Holgate J and HHJ Hodge QC, sitting also as Judges of the County Court) in Avon Ground Rents Ltd v Child [2018] UKUT 204 (LC), [2018] HLR 44 (“Avon”)

 

Damages

Khan v Tariq Mehmood [2022] EWCA Civ 791

This appeal concerned a challenge by the owner of a property to the quantum of damages awarded to the tenant of the property for breach of an implied covenant to keep the property in repair. The case raised two points: (i) the period for which damages had been awarded and (ii) whether the judge had been correct to make a 10% Simmons v Castle uplift.

On the first point the Court of Appeal limited the damages to the period during which the claimant had been a tenant, as opposed to an occupant of the premises.

In Simmons v Castle the Court of Appeal held that “”with effect from 1 April 2013, the proper level of general damages in all civil claims for (i) pain and suffering, (ii) loss of amenity, (iii) physical inconvenience and discomfort, (iv) social discredit, or (v) mental distress, will be 10% higher than previously . . .” The Court of Appeal in this case held that the Simmons v Castle 10% uplift applied to genereal damages for disrepair, notwithstanding the fact that such damages were commonly awarded by reference to the current rent, which would accordingly increase in line with inflation in contrast to damages for personal injury.

 

Live/Work Units

AHGR Ltd v Kane-Laverack [2022] EWHC 2025 (Ch)

In this appeal Meade J was asked to consider a user covenant in a lease which restrained the use of any part of the premises other than for “live / work”. It was common ground that “live / work” without more was capable of meaning “live and / or work”, and did not require both uses. The claimant’s case was based on the nature of the premises as shown on the plan. The judge below, HHJ Johns QC, had rejected that case on the basis that the premises were not shown simply as a “live / work” unit in the sense of a unit designed with residential accommodation in one part and a space suiting a range of B1 uses in another part, but as a conventional flat. Meade J upheld that conclusion. At the end of the judgment, in the context of a discussion of costs pursuant to the lease, there is also consideration of whether the claimant had adequately evidenced an intention to forfeit.

 

Insurance Rent

Assethold Limited v William Jonathan & Kirsty Lauren Hoye, Nicola Fox [2022] UKUT 173 (LC)

The appeal to the Upper Tribunal raised the question whether the FTT had been right to consider that demands for insurance rent were invalid due to the form of the demand and unreasonable in amount because the landlord failed to disclose that the premises had a shared access with a neighbouring building and this failure invalidated the insurance.

The Upper Tribunal held that the demands were valid. Although the demand did not comply with the lease there was no suggestion in the lease that exact compliance was pre-condition to payment. The Upper Tribunal also overturned the decision that the insurance had been invalidated as that finding was not open to it on the evidence.

 

Recoverability of legal costs incurred against a third party as a service charge

Andrew Lawson Dell, Jennifer Simone Dell v 89 Holland Park (Management) Ltd [2022] UKUT 169 (LC)

The background to this case was extensive litigation between 89 Holland Park (Management) Ltd,   the freeholder of 89 Holland Park against a neighbour. Costs had been incurred by the freeholder, inter alia, in objecting to a planning application made by the neighbour. The issue in this case is whether the landlord could recover the costs of that litigation through the service charge.

The clause in question provided as follows:

” Without prejudice to the foregoing to do or cause to be done all such works installations acts matters and things as in the reasonable discretion of the Lessor may be considered necessary or advisable for the proper maintenance safety amenity and administration of the Building .”

The FTT held that this clause permitted the landlord to recover its costs.

In Assethold Limited v Watts [2014] UKUT 537 (LC) the Upper Tribunal had construed a materially identical clause as permitting the landlord to recover the landlord’s costs of litigation arising from a party wall dispute.

Judge Elizabeth Cooke held that the FTT had given insufficient regard to the context, to the focus in the lease on the practical management and upkeep of the building, and to the presence elsewhere in the lease of express provisions relating to legal costs

The Upper Tribunal distinguished Assethold Limited v Watts [2014] UKUT 537 (LC) whilst not doubting the correctness of that decision on the facts of that case.

 

Right to Manage

18 Langdale Road RTM Co Ltd v Assethold Ltd [2022] UKUT 215 (LC)

A notice claiming the right to manage under the Commonhold and Leasehold Reform Act 2002 had omitted a paragraph of the notes contained in the prescribed form dealing with the circumstances in which the proper recipient of the notice could not be found.  The Upper Tribunal considered that the notice was nonetheless valid following Natt v Osman [2013] EWCA Civ 584 and noting that in Mill House RTM Company Limited v Triplerose Limited [2016] UKUT 80 (LC), the Upper Tribunal had considered that the omission of all the notes would be fatal, but the same was not necessarily the case where only part had been omitted and that part had no application to an individual case.

 

Appointment of a manager

Invergarry Court Ltd v Connolly[2022] UKUT 209 (LC)

A minority of leaseholders in a block made an application for the appointment of a manager under the Landlord and Tenant Act 1987 based upon a number of grounds, including unreasonable refusal to consent to assign and unreasonable service charges.  The FTT made the order.

The UT set aside that order.  The FTT had not set out in its decision sufficient reasons for making that appointment.  It had failed to set out what breaches it considered had been made out or whether there was some other circumstance which justified making the order.  Further, there was nothing to indicate that it had considered whether, even if one of the gateway grounds had been made out, that it was just and convenient to make the appointment.  It had also not considered what the purpose of the management order would have been and whether there were suitable alternatives available to making the order.  In setting aside the FTT appointment of the manger, the UT reflected that such an order was a ‘draconian remedy, which takes away contractual rights and obligations and imposes expense on the parties’.

The UT also left open the point as to whether a refusal to consent to assign was ‘a function in connection with the management of premises’ with the result that it could form part of the manager’s functions under an order.

 

Service Charges

Parmar v 127 Ladbroke Grove Ltd [2022] UKUT 213 (LC)

A landlord had only served interim demands for a number of years, with no reconciliations being carried out.  The leaseholder challenged the landlord’s ability to recover service charges on the basis that the time for demanding them had lapsed, being 18 months under s.20B of the Landlord and Tenant Act 1985.  The FTT considered that a notice had been given under s.20B(2) of the costs that the landlord intended to charge in the future, with the result that the 18 month time limit no longer applied.

The UT disagreed.  The FTT did not have evidence before it to support their conclusion that sufficient notice in writing had been given to the leaseholder of the costs it intended to pass through the service charge for s.20B(2) to be met.  However, as the landlord had already obtained a County Court Judgment for the interim demands and had not carried out any reconciliation, there was nothing else to consider.  As no deficit balance was being demanded, s.20B was not engaged.

Triplerose Ltd v Bowles [2022] UKUT 214 (LC)

As the leaseholders had not challenged all of the cleaning and management costs, they had admitted part and the FTT had no jurisdiction to go behind that agreement.  Therefore when the FTT reduced the sums payable to a sum less than the amount admitted, they had exceeded their jurisdiction and the UT set that part of their decision aside.

Louise Webb, James Webb v Sunley (Findlay Close) Residents Ltd [2022] UKUT 171 (LC)

The FTT under the written determination procedure determined that service charge demands had been served on the tenant. The Upper Tribunal overturned that decision on appeal:

“The FTT’s decision was unfair because it made a decision on the papers when there was a dispute of fact, and because it reached a conclusion that was not open to it on the evidence before it.”

The matter was remitted.

 

Rent Repayment Orders

Kowalek v Hassanein Ltd [2002] EWCA Civ 1041

The Court of Appeal dealt with a number of issues relating to the level at which a rent repayment order should be set under the Housing and Planning Act 2016.

Firstly, under s.44(2), the landlord was not at risk of having repay rent paid when they were not committing an offence.  The maximum amount was to be determined ‘without regard to rent which, while it might have discharged indebtedness which arose during the period specified in section 44(2), was not paid in that period.’

Secondly, the failure of the tenant to pay rent was conduct which the FTT could take into account under s.44(4).  In this case there was no dispute as to the arrears of rent, albeit that at the time of the FTT decision there was an outstanding claim in the County Court for the arrears.  Where there was a dispute over the level of rent, it was suggested that either the County Court claim should be determine first or the proceedings should be heard together.

Cobb v Jahanghir [2022] UKUT 201 (LC)

Tenants brought a claim for a rent repayment order against their landlord under the Housing and Planning Act 2016 as the property was an unlicensed house in multiple occupation, contrary to s.72(1) of the Housing Act 2004.  The FTT declined to make the order as it considered the tenants had failed to provide admissible evidence to support their claim, in particular to establish beyond reasonable doubt that the offence under s.72(1) had been committed.

The UT set aside that decision.  Although the tenants had sought to change their evidence at the last minute, that change in evidence was not in relation to whether or not an offence had been committed, but the amount sought.  It was common ground that the property was an unlicensed HMO and so the tenants did not need to prove that.  It then fell on the landlord to prove that he was not in control of the property and/or that he had a reasonable excuse for committing the offence.  That was not evidence that the tenants needed to lead on.  The dismissal of the application on this basis was therefore an error.

The FTT had also wrongly considered that there was no evidence from the tenants; however, they had signed a statement of truth at the end of the application as well as further document in support which complied with the further directions that had been given.  That was sufficient to amount to evidence.

The application was remitted to the FTT to determine whether there was a reasonable excuse and if not, the level of rent to be repaid.

Hallett v Parker [2022] UKUT 165 (LC)

The issue in this appeal was whether the FTT took into account all relevant matters when it made a rent repayment order requiring a landlord to repay the full amount of the rent he had received from tenants during the period to which the order related.

The FTT’s decision started with a presumption that a rent repayment order should require the full amount of the rent to be repaid unless there is some good reason to discount it. That was wrong in principle, Williams v Parmar [2021] UKUT 244 (LC) followed. The Upper Tribunal made a rent repayment order representing approximately 25% of the sum paid by the tenants in rent in the period during which the offence was being committed. The decision sets out the factors considered relevant by the tribunal in coming to this decision. These included: that the landlord was not a “rogue landlord”; that he acted in ignorance, rather than defiance, of the HMO scheme; the condition of the property was good; that he had applied for and was granted a licence as soon as he became aware that one was required; and that he let no other property.

Simpson House 3 Ltd v Osserman [2022] UKUT 164 (LC)

In this appeal the FTT had made the same error as in the above case, that is it started with a presumption that a rent repayment order should require the full amount of the rent to be repaid unless there is some good reason to discount it. It made an order that the landlord should repay to the tenants 65% of the rent received for a 12-month period. The landlord appealed that decision. The tenants cross-appealed on the basis that the FTT had failed to take the landlord’s poor conduct into account.

The landlord then abandoned the appeal.

The Upper Tribunal on the cross appeal gave “considerable weight” to the vindictive service of a s. 21 notice by the landlord and other aspects of poor conduct. The Upper Tribunal substituted an order requiring the repayment of 80% of the rent paid.

Northumberland Mews Ltd v Thanet DC [2022] UKUT 179 (LC)

A landlord owned a house converted into five flats.  The occupation of each flat was such that it was an HMO under the Housing Act 2004.  In breach of that legislation the landlord had failed to obtain a license for each and was fined £10,000 for each flat.  The landlord appealed on the basis that this was only one building that required licensing and therefore only one fine should have been imposed.  The UT concluded that the Act was flexible in its approach to what was required to be licensed, it could be the smallest or largest possible unit.  On that basis, the decision of the FTT and the council were correct in that the landlord was liable to be fined for each flat as a separately licensable unit.  That fact that the council could have levied one fine in respect of the whole building, did not undermine their decision to levy five.

 

This material was first published in the Landlord and Tenant Review and is reproduced here with the kind permission of the publisher Sweet and Maxwell.

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