Monthly Archives: January 2014

Residential Developer Wins First Review of Section 106 Agreement Affordable Housing Requirement.

Last year the Government introduced the right to have Section 106 Infrastructure Agreements Reviewed where the onerous nature of their requirements on developers threatened the viability of housing schemes. This was to try to remove the barrier to 75000 planned homes currently baulked by those requirements.

Albany Homes faced a 20% affordable housing requirement on an 100 flat tower close to the South East London Aquatic Centre. They reckoned that the requirement could make the scheme unviable even if prices rose by 15%.

In the first review under the new legislation Albany have forced Greenwich Council to drop the requirement entirely.

Developers thinking of using the same mechanism might want to bear in mind that it’s use may affect their future relations with local planners.

As usual this blog is posted out of general interest. It does not replace the need for proper legal advice in individual cases.

Weather boarding connection did not prevent Flats from being “self contained” to qualify for Right to Manage

Not all buildings qualify for the right to manage. Under Section 72 of the Commonhold and Leasehold Reform Act 2002. They must be “self contained” which is defined to include them being structurally detached.

For the purposes of the Leasehold Reform Act 1967 this expression was defined by the House of Lords, in Parsons v Gage (Trustees of Henry Smith’s Charity) [1974], to mean detached from any other structure.

No.1 Deansgate (Residential) Ltd v No.1 Deansgate RTM Co Ltd [2013] the flats were 14 in number arranged over commercial units. Adjoining buildings were constructed later and connected to the flats by weather boarding to prevent water getting in.

Had the Leasehold Reform Act interpretation of structurally detached been applied the flats would not have qualified for the right to manage.

However the court said that interpretation did not apply to the right to manage.
The test for the right to manage was whether the buildings were connected by structural means. They were not as the block had remained self contained and derived no structural support from it’s later neighbours.

As usual this blog is posted out of general interest. It does not replace the need for proper legal advice in individual cases.

Right to manage can apply to more than one Apartment block on an Estate

The Government brought in tenants’ right to manage residential flats to counter the frustration of flat owners who had spent large sums on their flats only to find they remained beholden to Landlords and their agents and budgets for day to day management.

Landlords have tried to counter applications for the right to manage in various ways. One principal way has been to challenge any right to manage company’s application to manage more than one self contained block of flats in a complex meaning any application to manage more than one block of flats on the same estate was unlawful.

This was nipped in the bud by the recent decision of The Upper Tribunal (Lands Chamber) in Ninety Broomfield Road RTM Co. Ltd. & Other linked cases [2013].

The Judge said that there was in fact nothing in Section 72 of the Commonhold and Leasehold Reform Act 2002 to limit the number of blocks to which a right to manage application might relate.

This means that where a right to manage company wants to manage more than one block on an estate it can do so and does not have to serve separate notices and applications in relation to each block.

As usual this blog is posted out of general interest. It does not replace the need for proper legal advice in individual cases.

Directors diverted Property Opportunity to their Own Company and breached Fiduciary Duties

Where directors encounter an opportunity in their role as a director or that they might and should implement for the benefit of the company they must exploit it for the benefit of the company and not seek to divert it for their own benefit. This rule applies equally where the shares of the company to which the opportunity is diverted are beneficially owned by the directors concerned.

This was the situation in Pennyfeathers Ltd –v- Pennyfeathers Property Company Limited (2013). In that case the directors were brought in to assist a company set up to use a land option held by 2 individuals. But they set up their own company Pennyfeathers Jersey Limited which proceeded to take a conditional contract in respect of the land and to enter options to acquire surrounding land.

The court lifted the corporate veil on Pennyfeathers Jersey Limited saying that its contracts where impressed with implied trusts in favour of Pennyfeathers Limited by virtue of the directors’ ownership and control of the Jersey Company and held that they and the directors were accountable to Pennyfeathers Ltd for their profit.

This position could only have been avoided if the relevant directors had made full disclosure to Pennyfeather’s Limited and got that company’s full approval by written resolution. In practice that could only have occurred had the 2 directors taken over Pennyfeathers Limited as well.

As usual this blog is posted out of general interest. It does not replace the need for proper legal advice in individual cases.

Landlord’s Refurbishment Programme may not afford much defence to End of Lease Repairs Dilapidations Claim

When a lease expires whether the tenant has complied with it’s repair covenants is to be judged by the standards at the start of the lease not at the end.

Even if the building is compliant with those covenants, it may not be relettable in the modern market. However, as the recent case of Sunlife Europe Properties Ltd –v- Tiger Aspect Holdings Ltd (2013) confirms, the tenant will not be liable for the additional cost of bringing it up to modern standards.

If the building is non compliant with the tenant’s covenants, the tenant will be liable for the cost of making good that non compliance, but not for the additional cost of bringing it up to modern standards.

Furthermore the tenant will not be liable for making good non-compliance to the extent that:

– The relevant works would have been superseded by the necessary modernisation anyway, or

– The liability would exceed the statutory cap in section 18 of the Landlord and Tenant Act 1927 (“the Section 18 Cap”) i.e. the cost of the relevant works would have exceeded the reduction in the value of the landlord’s unmodernised reversion caused by that non compliance.

In this particular case the costs of remedying the tenant’s breaches was comfortably less than the Section 18 Cap so the tenant was liable for the full amount of the cost.

The tenant could not be expected to fund the landlord’s further improvement works. However that afforded the tenant little relief here as:

– Few of those works superseded the works the tenant was obliged to do to comply with it’s covenants. So the tenant was liable for it’s failure to do them, and

– the tenant was liable to the extent that it’s breaches rendered the cost of making the landlord’s improvements more expensive.

The cost of the valuation reports in this case was alone well over £30,000. The damages bill in excess of £1.3m is a reminder of the heavy costs that tenants can face for not complying with their repairing obligations.

As usual this blog is posted out of general interest. It does not replace the need for proper legal advice in individual cases.

Agent’s Breach of Fiduciary Duty to Vendor Entitled Vendor to Agent’s £744,035.02 Commission on the Resale

To cite the Judge in the case that follows: ‘Many commercial property transactions involve local agents and developers and they will tend to know each other. An agent (A) will frequently have a contact book that he can exploit for the benefit of a vendor (V). Many of the contacts in that book, who might become purchasers (P), might also be former clients of the agent. In one sense it is therefore in the interest of the vendor to use an agent who has strong local connections and who can, through using his local contacts and goodwill, identify potential purchasers and introduce them to the property in question. And of course once the sale is over there may very well be ongoing work for a good and competent agent now acting for a new client, viz., the purchaser.

But this conceals a problem which is that an agent who has an interest in the transaction from both sides of the negotiating table has a clear conflict of interest. The vendor wants to sell for the highest price; the purchaser wants to buy for the lowest price. The incentives operating upon the agent can depend upon the nature and structure of the fee arrangement. A fee structure can operate to create a powerful incentive on an agent to favour the Vendor or P and he might fashion his advice accordingly. From V’s point of view if A is also advising P then A might not loyally be seeking the highest price possible. He might also be using information of a commercial or confidential nature which belongs to V and which A has acquired only by virtue of acting for V, but which could be of real value if communicated to P.

This value could lie in P negotiating a lower price in the sale from V and/or at a later stage when P wishes to sell the property on, or develop it, or otherwise exploit it for commercial gain.

It is important also to recognise that the point in time at which a conflict might arise can be well before A actually negotiates a fee arrangement with P. If A seeks, speculatively, to procure P as a client then A might well promote himself upon the basis of the “inside track” knowledge that he has of V. That information might be valuable to P in deciding upon the optimal level of offer to make to secure the purchase; but the information might be proprietary to V and be in the possession A only because of his retainer from V. For instance it might relate to problems that V is facing in negotiations with individual officials in the planning authority or financial pressure imposed on V by its bank or creditors, which make it anxious to sell and prepared to accept a low offer.

If A is actively soliciting instructions from P then he risks putting himself in a position of conflict because his personal interest runs in the opposite direction to his duty of loyalty to his principal (his existing client).

The solution to the conflicts which arise is full disclosure by A so that all parties become fully aware of the position that their agent is in. Disclosure might enable V to impose limitations or conditions upon A’s dealings with P. If the principals accept the position then the agent is secure from an allegation of breach of fiduciary duty.

Because of the advantages that can accrue from an agent who uses his skill and contacts to bring sellers and buyers together, the respective principals might well be content to approve the agent’s dual role possibly subject to conditions. Generally, it will be the consent of the first principal (usually V) that is critical because the second principal (P) will almost invariably be fully aware that A is instructed for the vendor and indeed that might be the very reason that makes A attractive to P in the first place. But the key is disclosure – “sunlight bleaches”.’

In the case of The Northampton Regional Livestock Centre Co Ltd v Cowling & Anor [2014] V advised by A had sold the site to P for £2.25m. P again advised by A had on the same day completed the site’s sale to Kilmartin Ltd for £5m. So P turned a profit of £2.75m on the same day without any material outlay on their part.

A had during August 2005 been providing information belonging to V to P that would have been of use to them in formulating their offer to V for the Site; and (ii), on 31st August 2005 A made a fee agreement with P which entitled A to one third of the difference between the price at which P bought off V and P’s resale price. So as a result of the sale, A had became entitled to one third of the uplift, i.e. £744,035.02.

The Court was quite clear that A should have made full disclosure of all these facts to P.

This was necessary because had that been disclosed in advance V might have taken a number of protective steps. It might, for instance, have objected upon the basis that in providing this information and advice he would be divulging commercially valuable information that he had only acquired by virtue of this long association with V by virtue of his partnership in the Estate Agency.

He thereby risked compromising the ability of V to obtain the best price from P for the Site. They might, by way of further example, have terminated his agency to act for V.

A placed himself in breach of his duty when he placed himself in the position of conflict and before and irrespective of any loss by V.

A was accordingly liable to V for the amount of his commission on resale i.e. £744,035.02.

V also sued A’s former partner but under the Partnership Act 1890 but it was found that A’s unauthorised conduct in relation to P was” sufficiently divorced from the ordinary business of” the partnership to not be “in the ordinary course of it’s business. This is closer to the “frolic of own” cases and to cases of dishonesty or malpractice where case law suggested were outside the scope of vicarious liability in cases of negligence etc. Therefore the former partner was not vicariously liable for the breach of fiduciary duty on the part of A.

This blog is posted out of general interest and does not replace the need to obtain proper legal advice in individual cases.

Wife entitled to ”Equity of Exoneration” from Net Sale Proceeds of Mortgaged Property in Priority to Husband and his Chargee

Where joint proprietors mortgage their property to secure bank loans to a company that they both control, both might be said to stand in the position of guarantor in relation to that company.

Subject to the terms of the guarantee, both will be entitled to an equal right to be exonerated by that company to recover their outlay to the beneficiary of that guarantee.

In  Day v Shaw and another [2014] the debts secured were those of a company owned by Mr Shaw. Their daughter was involved with the company but not Mrs Shaw.

The High Court held (1) that Mrs Shaw, who mortgaged the home she owned jointly with Mr Shaw to secure those debts, was entitled to be indemnified against those debts by her husband, and (2) that his share of the proceeds of sale from the house was subject to her rights to (“equity of”) exoneration.

Accordingly Mr Day, who had a charging order over the husband’s share of the sale proceeds, found that share reduced by the amount Mrs Shaw’s exoneration claim.

This blog is posted out of general interest. It does not reduce the need to seek proper advice in individual cases.

Accidental Release of Lease Surety and Guidance on Meaning of Word “Forbearance”

Where a Surety enters into a lease to give a guarantee, the Landlord should make it a requirement that that Surety join into any licence to alter which changes the nature of the premises.

Such alterations may increase the insurance premiums, and potentially, the burden on the Surety under the rent review clause, and, under the repair, redecoration, reimbursement, and reinstatement covenants, should the tenant default.

In Topland Portfolio No. 1 Ltd v Smiths News Trading Ltd [2014] the lease’s restrictions on alterations were tight so the Surety would have known when it became party to the Lease that those burdens could not be increased as a result of additions, alterations or improvements to the premises, because no such additions, alterations or improvements could be made unless the Landlord consented to them outside the framework of the Lease. In that event, the Surety was entitled to expect that its consent would be sought as well.

The Court of Appeal dismissed the landlord’s appeal and held that the Surety had been released from its obligations under the lease as it had not been a party to, nor consented to, the licence for alterations.

The Landlord tried to argue that the guarantee contained the usual proviso that no forbearance would release the Surety. But the Court said those words only applied where the landlord temporarily held off enforcement proceedings for a breach of covenant.

Here there had not been a breach of covenant. The licence for alterations had varied the strict prohibitions of the lease, and pre authorised the works, so there never was a breach of covenant to which the proviso might have applied.

This blog is made out of general interest. It does not replace the need to get proper legal advice in individual cases.

Residential subdivisions require planning permission but individual flats may benefit under Four Year Immunity Rule

Where the use of a “building” has been changed to a single private dwellinghouse, without planning permission, for at least four years the owner may be able to apply to the local planning authority for a certificate of established use. Once obtained this will prevent the local planning authority from taking enforcement action in relation to the original breach of planning control.

What happens if the property was a “building” and the breach consists of converting it into a number of flats?

Looking at each flat in isolation is it “a single private dwellinghouse” that the relevant “part” of the “building” was converted into and so eligible for such a protective certificate once the four years was up?

Or do you say it’s one of a multitude of flat dwellings that resulted from the conversion of a building and so not a conversion to a single private dwellinghouse such as to qualify for a certificate i.e. do you take a holistic approach to the “building”?

If what we have to focus on is the “planning unit” (i.e. each individual flat) and it’s status over the last four years down to the present time, the former approach may be just about tenable.

Indeed in Van Dyck v Secretary of State for the Environment (1993) the Court of Appeal found that more than four years after such a subdivision of a building each flat was entitled to the benefit of the “four year immunity” on the basis that Section 336(1) of the Town & Country Planning Act 1990 said “a building” was indeed to be construed as including “part of a building”.

In the recent case of Ozyurekliler v Secretary of State for Communities and Local Government (2013) the appellant had converted his freehold terraced house into seven flats. This was held to be a breach of planning control.

However in appropriate cases the “four year immunity might have been available later to any tenants of the individual flats if the flats found takers and lasted so long..

As usual this Blog is for general interest. It does not replace the need to seek proper advice in individual cases.

Court’s inherent power to order cancellation of a Land Registry unilateral notice

Prior to the Land Registration Act 2002 the Court had the inherent power to order the cancellation of a caution registered at the Land Registry against a property to prevent dealings with that property.

In Nugent v Nugent [2013]  the High Court considered whether, following the Land Registration Act 2002, it still had the inherent power to order the cancellation of the unilateral notices introduced by that Act to protect alleged land interests,  and, if it did have the power, as to when and, in what manner, the power should be exercised.

In that case the claimant alleged that the respondent and her late husband had agreed to leave them their house in their Wills and lodged the unilateral notice at the Land Registry to prevent the respondent from selling or  mortgaging it except on terms that recognised the substantial interest the claimant was claiming.

The High Court followed the precedent set by the case of  Waghorn v Waghorn ( 2013),  where the High Court had ruled (1) that a claim protected by a unilateral notice was unarguable, and, (2) that the old pre 2003 jurisdiction, which had existed, to order the removal of cautions, still existed to allow the court to order the removal of unilateral notices under the 2002 Act. So in Waghorn’s case the HIgh Court had made an order requiring the Land Registry to remove the unilateral notice.

Waghorn’s case was distinguishable from this as the Respondent had an arguable interest to protect.

Whether interests are arguable or unarguable, the precise basis for the court’s claimed jurisdiction is unclear and there is a strong possibility it will be tested in the Court of Appeal in this or a future similar case.

As usual the above is mentioned out of general interest and what is said on this Blog does not replace the need to get proper legal advice in individual cases.