Contract - specific performance: Airport Industrial GP Ltd v Heathrow Airport Ltd & AP16 Ltd

Key points:

  • If an obligation under a contract (or a covenant under a lease) has been breached, the benefitting party can apply to the court for an order for specific performance (which will force the breaching party to perform the obligation/comply with the covenant)
  • In circumstances where it is obvious the provision will not be complied with, the court can grant an order before the breach has actually occurred
  • Specific performance is an equitable remedy, so the courts have wide discretion when granting orders and may vary the original obligation to make the ultimate purpose easier to achieve, but they will not order specific performance where damages would be an adequate remedy

In 2005 HAL granted a lease to AP16 Ltd. AP16 were to provide 280 car parking spaces to HAL free of charge no later than 22 October 2016. AP16 wanted to build a multi-storey car park on the site, rather than a surface car park, which would provide the necessary spaces but no more. AP16 therefore delayed constructing a surface car park because a multi-storey car park would net them a higher income and potentially prevent AP16 becoming insolvent.

The court agreed to grant the order for specific performance, but suspended it for two years to give AP16 time to build their preferred multi-storey car park. HAL was awarded compensation for loss of amenity/use of the parking spaces from the deadline in the lease to the date of actual performance. The court also imposed a strict timeframe for the planning and construction process over the agreed two year suspension.

Practical implications:

This decision is highly unusual but it was made to try and balance the commercial interests of both parties. In most cases the position would remain that an order can be applied for before the deadline but is not likely to be granted until the deadline has passed, unless there is evidence to show it would be impossible to comply before the deadline because the preparatory steps to ensure compliance have not been taken.

Depending on the circumstances, landlords may also want to reserve ‘step in’ rights allowing them to carry out the works themselves or reserve the right to forfeit the lease in the event of breach.

Contract -specific performance: Dudley Muslim Association v Dudley MBC

Key points:

  • Local authorities are subject to public law and have an obligation to act fairly, reasonably, and lawfully
  • Public law does not apply to a private contract between the local authority and a third party unless the authority has acted in bad faith or with an improper motive
  • No matter who you are contracting with, to avoid disputes about failure to comply with a contractual deadline, make sure you agree some flexibility if there are delays, for example in getting planning permission

In 2003 DMA took a lease from DMBC for 99 years.  DMA exercised an opinion to buy the freehold contained in the lease and acquired the freehold in 2005.  Under the terms of this transer, DMA was obliged to develop the site as a mosque and community centre within a strict timeframe.

If the development was not completed by 31 December 2008 to the satisfaction of DMBC, DMA was required to transfer the freehold back to DMBC. DMA applied promptly for planning permission but due to delays on the part of DMBC and other circumstances beyond DMA’s control, planning permission was not granted within the deadline.In 2003 DMA took a lease from DMBC for 99 years. DMA exercised an opinion to buy the freehold contained in the lease and acquired the freehold in 2005. Under the terms of this transer, DMA was obliged to develop the site as a mosque and community centre within a strict timeframe.

Although this was acknowledged in correspondence by DMBC and DMBC’s chief executive suggested a new date should be agreed for completion of the development once the planning issues were resolved, DMBC applied for specific performance of the requirement to transfer-back. DMA claimed that they should be allowed more time.

DMA’s main defence was one of public law: that DMBC had acted unfairly, unreasonably and in breach of DMA’s legitimate expectation they would be allowed to develop within a reasonable timescale. The court held that DMA could not use a public law defence in relation to a private contract.

The question was the enforceability of the contract and not the use of the local authority’s statutory powers. It was a commercial contract entered into at arm’s length by parties who were both represented and DMA was perfectly aware of the deadline and the timescales before it entered into the contract.

Practical implications:

Although the DMA tried to avoid the strict timeframe contained in the transfer they ultimately agreed to it, seemingly without any assurances from DMBC. There was no flexibility built in for DMA and, despite the apparent willingness of DMBC’s chief executive to extend the deadline, the arrangement was not formally varied.

Where you are entering into contracts with tight timescales, make sure you agree up-front that extensions will be allowed where delays are caused by reasons or events beyond your control.

Landlord & Tenant - right of first refusal: Artist Court Collective Ltd v Khan

Key points:

  • Part 1 of the Landlord and Tenant Act 1987 (LTA 1987) gives tenants of residential buildings and some tenants of mixed use buildings a right of first refusal over the freehold before it can be sold to a third party
  • Landlords cannot make a “relevant disposal” without serving notice on the tenants and giving them the opportunity to buy the freehold first
  • If the landlord does not offer the freehold to the tenants first and transfers the property to a third party, the court can order the landlord to transfer the property to the tenants on the same terms
  • The landlord could also be subject to a fine and imprisonment for failing to comply

K owned a freehold building comprising three commercial units on the ground floor and eight residential flats on the upper floors, let on long leases. In 2011 he sold the freehold to SGR Properties (UK) Ltd (SGR), a company he controlled, for £225,000, without offering the freehold for sale to the tenants first.

The tenants discovered the sale and formed the company, ACC. They then served a purchase notice on SGR as the freeholder to transfer the freehold to them.K owned a freehold building comprising three commercial units on the ground floor and eight residential flats on the upper floors, let on long leases. In 2011 he sold the freehold to SGR Properties (UK) Ltd (SGR), a company he controlled, for £225,000, without offering the freehold for sale to the tenants first.

In an attempt to try and thwart the notice, SGR transferred the freehold back to K for nothing (breaching Part 1 of the LTA 1987 again). ACC therefore served a second purchase notice on K.

K produced a trust deed pre-dating the first transfer to ‘evidence’ that SGR held the beneficial interest in the property on trust for K. K’s argument was that the beneficial interest never left K, therefore, there hadn’t really been a disposal.

The court found there had actually been three relevant disposals: the initial freehold transfer to SGR, the Deed of Trust stating SGR held the property on trust for K; and the transfer of the freehold back to K.

The court had the power to compel K to transfer the property to the tenants on the same terms as the relevant disposal. The proceedings before the court were based on the second purchase notice therefore the court ordered K to transfer the freehold to ACC for nothing.

Practical implications:

A stark warning for landlords not to try and circumvent the LTA 1987. By trying to be clever the landlord lost an asset worth upwards of a quarter of a million pounds and the rental income.

Landlord & Tenant - tenant’s damages for disrepair: Moorjani v Durban Estates Ltd

Key points:

  • Leases give tenants rights to exclusively occupy a property for the duration of the lease
  • Leases also give tenants proprietary rights over the property
  • If a landlord allows the building/communal areas to fall into a state of disrepair and delays in their duty to maintain, they can be liable to compensate the tenant for interfering with their occupation and their proprietary rights (even if the value of the property is not affected)

M was the owner of a leasehold flat. Disrepair to the building was causing damage to the communal areas and the interior of M’s flat.

M’s flat was however still habitable and the capital value of the flat had not been affected. The common parts were described as ‘dilapidated, shabby and dingy’. M claimed damages for loss and inconvenience suffered as a result of the disrepair.M was the owner of a leasehold flat. Disrepair to the building was causing damage to the communal areas and the interior of M’s flat.

M was living elsewhere for some of the period of the disrepair for personal reasons not connected with the disrepair. The main question was how this impacted on M’s claim for compensation. Would M be entitled to be compensated for the loss of amenity value of his proprietary interest or for the actual inconvenience (which would be minimal as M had chosen to live elsewhere, therefore the flat was empty)?

The county court originally found that M was not entitled to general damages for loss and inconvenience for the period he was not living at the property. The Court of Appeal found that he should be compensated, as his proprietary rights were still affected even though he chose not to live at the property.

Practical implications:

Even if a tenant suffers no discomfort or inconvenience, landlords could still be liable in damages for breach of repairing obligations if they impair the proprietary rights of the tenant. Landlords should be vigilant when receiving complaints about disrepair and act promptly, whether or not the tenant is residing at the property at the time.

Restrictive convenants - release: Re: Snook's application

Key points:

  • If you have an interest in land affected by a covenant you can apply to the Upper Tribunal (Lands Chamber) to have the covenant modified or discharged
  • To be successful you have to establish one or more gounds, inlucding:
    • There has been a change in the character of the burdened land.
    • Or the character of the neighbourhood render the covenant pointless – for example a once sparsely populated area has now become a heavily developed residential neighbourhood such that the covenant is now obsolete; or
    • The covenant impedes some reasonable use of the land; and
      • Does not secure any practical benefit of substantial value or is contrary to the public interest; and
      • Money would be adequate compensation to a person suffering loss/inconvenience as a result of the removal or modification of the covenant

In September 2012, S purchased 71 Cherry Tree Road, Sheffield. The adjoining owners of 69 Cherry Tree Road had the benefit of a covenant over No. 71 that ‘no more than one dwelling house’ could be built on the land.

S fenced off part of the garden to No. 71, transferred it to a separate title and made a pre-application planning enquiry about building a separate dwelling on that land. The adjoining owners objected to the proposed development.In September 2012, S purchased 71 Cherry Tree Road, Sheffield. The adjoining owners of 69 Cherry Tree Road had the benefit of a covenant over No. 71 that ‘no more than one dwelling house’ could be built on the land.

S applied to have the covenant modified/discharged.

The Tribunal found that the character of the property/neighbourhood had not changed to such an extent as to make the covenant obsolete, as it was a leafy suburb and remained so. The development would also impact on the value, use and enjoyment of No. 69 to the extent that money was not adequate compensation.

Practical implications:

If you are intending any development in apparent breach of covenant it is worth seeking specialist advice about removal of the covenant first or arranging a bespoke indemnity insurance policy to cover the risk. Standard indemnity policies will not cover future intended breaches, only existing breaches.

Transactional - fraudulent replies to CPSEs: Greenridge Luton One Ltd & Another v Kempton Investments Limited

Key points:

  • A misrepresentation of fact or law which induces another party to enter into a contract to their detriment entitles the injured party to claim compensation or in certain circumstances rescind the contract
  • Fraudulent misrepresentation occurs when a party makes a statement which it knows to be untrue or makes it recklessly without belief it is true i.e. there has to be an absence of any honest belief
  • A negligent misrepresentation under the Misrepresentation Act 1967 occurs where a party makes a statement carelessly or without objective reasonable grounds for believing it is true

G exchanged contracts with K for the purchase of an investment property for £16.25 million. G paid a deposit of £812,500 on exchange.

The property comprised three office buildings near Luton airport. 79% of the office space was leased by K to TUI Northern Europe Limited (TUI).G exchanged contracts with K for the purchase of an investment property for £16.25 million. G paid a deposit of £812,500 on exchange.

In January 2013, TUI appointed a service charge consultant to investigate the service charge and cited that they had ‘grave concerns’ over the management of the property over the last five years. TUI felt they were not getting clear information from K, so withheld part of the service charge payment for the June/September quarter. TUI also instructed solicitors to act for them regarding the service charge dispute.

In replies to CPSEs prepared whilst K was marketing the property for sale and before the buyer had been found, K stated that there were no disputes, no arrears and that in relation to disputes regarding service charge, TUI had raised queries on mostly historic issues.

G became aware of the service charge dispute (which could have involved sums of more than £4 million) between exchange and completion following a report from its lender’s valuer. G refused to complete and K served a notice to complete.

G then served notice to rescind the contract. K alleged that G had repudiated the contract and that it was entitled to keep the deposit.

The court found that G was entitled to rescind the contract because of the errors/omissions in the information provided by K prior to exchange. The representation that there were no service charge arrears was untrue and made either fraudulently or recklessly. The deposit was refunded and G was entitled to damages for wasted costs of £395,948.

Practical implications:

One of the replies to enquiries (regarding rent arrears) was correct at the time it was given but subsequently became incorrect when the June payment was withheld (the other two were incorrect when given and prior to exchange). When selling a property all answers to pre-contract enquiries must be correct at the time they are given and updated as soon as possible if anything changes.

Providing replies to CPSE enquiries can be a time consuming process. However, as this case illustrates, it is one which is worth the effort. K managed to resell, but for £15.6 million so with the damages, and their own legal fees, their ‘mistake’ cost them well over £1 million.

PLANNING POINTS

Development – concealment: Jackson v Secretary of state for Communities & Local Government

Key points:

  • The Town and Country Planning Act 1990 (TCPA) provides that where there has been a breach of planning control (with building works taking place without planning permission) a Local Planning Authority (LPA) cannot take enforcement action after the end of a period of four years from and including the date ‘building operations’ were ‘substantially completed’
  • Where ‘building operations’ have been concealed, the TCPA has, since 2012, enabled LPAs to apply to local magistrates’ courts for a Planning Enforcement Order (PEO) within six months of the LPA gathering enough evidence to take action, even where of the time limit for immunity has expired
  • LPAs have 12 months to enforce a PEO
  • Immunity periods do not apply where property owners deliberately conceal planning breaches with an intention to undermine the planning process and it is in the public interest that they do not apply (the ‘Welwyn Principle’)

J owned land which included a barn and one other building. The barn had been built without planning permission but J was successful in obtaining planning permission retrospectively (for use of the barn as a barn).

In late 2007/early 2008, J added dormer windows and roof lights to the barn. J’s son began to use the first floor as a dwelling at some point between February 2009 and June 2009.J owned land which included a barn and one other building. The barn had been built without planning permission but J was successful in obtaining planning permission retrospectively (for use of the barn as a barn).

J obtained retrospective consent for the windows but had in the meantime denied the LPA’s enforcement officer access to inspect, stating that works were ongoing. J therefore deliberately concealed the fact that the first floor was being used as a dwelling.

In 2013 (so after the change to the legislation), J applied for a certificate of lawful use for residential use of the first floor based on four years continuous use. Initially this was refused because the date the use commenced was unclear, so four years could not be established.

A second application was also refused partly on the same ground and also because under the Welwyn Principle, the deliberate concealment prevented J using the four year limitation period. J appealed, arguing the new statutory PEO procedure should be used instead of relying on the Welwyn Principle and as a result, the LPA’s refusal based on Welwyn was incorrect.

The court held that PEOs did not replace the Welwyn Principle and that the planning inspector had correctly applied the principle to the facts. Practical implications:

The courts are taking a strong stance against planning breaches so if you are unsure about any planning issues, speak to our Planning Team before commencing a development. If you are intending to apply for a certificate of lawfulness, check your dates carefully and ensure there could be no argument as to concealment.

Development – enforcement notices: Fidler v Secretary of State for Communities & Local Government

Key points:

  • If a structure is used to conceal ‘building operations’ then the removal of the structure itself can be deemed part of the ‘building operations’
  • As such the four year immunity period will only start to tick from the date the structure is removed
  • Enforcement can then proceed as normal without reference to Welwyn Principle or a PEO

F built a house (including a conservatory and a patio) without obtaining planning permission. F concealed the house behind bales of straw and tarpaulin.

F began living in the house in June 2002. In July 2006 (over four years later) he revealed the house by removing the bales of straw and tarpaulin.F built a house (including a conservatory and a patio) without obtaining planning permission. F concealed the house behind bales of straw and tarpaulin.

In February 2007 the LPA issued an enforcement notice requiring F to demolish the house. F argued the property had been ‘substantially completed’ for more than four years and therefore he was immune from planning enforcement action.

The court held that because F always intended to remove the straw bales and tarpaulin the act of removal was part of the ‘building operations’, meaning they were actually ‘substantially completed’ in July 2006, not June 2002.

As at the start of this year F had still not complied with the enforcement order so the LPA issued contempt of court proceedings. The deadline for demolition was the 6 June 2016 failing which F would face three months in prison. F has now demolished the property.

Practical implications:

F tried every trick in the book to avoid complying with the planning enforcement notice. It hasn’t worked: his castle has now fallen.

If you need any advice on the planning or enforcement process, please speak to a member of our Planning Team.

Planning – environmental impact assessments: R (Roskilly) v Cornwall Council & Others

Key points:

  • For certain types of development in sensitive areas, Local Planning Authorities (LPAs) are required to give a screening opinion to determine whether an applicant needs to carry out an Environmental Impact Assessment (EIA)
  • If anyone disagrees with the LPA’s screening opinion, they can request a screening direction from the Secretary of State
  • The Secretary of State’s decision takes precedence over the LPA’s, so if planning permission has already been granted and a decision is made that an EIA is required, that planning permission will be invalidated

In December 2014 Tidal Lagoon Swansea Bay Plc applied for planning permission to develop Dean’s Quarry which is an area of Outstanding Natural Beauty. In March 2015, R objected to the planning permission, arguing that as the development was in a sensitive area, an EIA would be required.

Later that month CC gave the opinion that they did not require an EIA, as the development was not likely to have significant environmental effects. On 7 April 2015, a planning officer at CC recommended that planning permission be granted.In December 2014 Tidal Lagoon Swansea Bay Plc applied for planning permission to develop Dean’s Quarry which is an area of Outstanding Natural Beauty. In March 2015, R objected to the planning permission, arguing that as the development was in a sensitive area, an EIA would be required.

The same day, R requested a screening direction from the Secretary of State. CC then subsequently granted planning permission.

In June 2015, the Secretary of State published its screening direction that there were likely to be significant environmental effects from the development and therefore an EIA was required. In July 2015, R applied for judicial review of CC’s decision to grant planning and the planning permission was quashed.

The court found that a screening direction from the Secretary of State about whether an EIA is required is conclusive. If an LPA grants planning permission before the Secretary of State has issued a screening direction, then they are taking a risk that a screening will be directed, making the planning permission unlawful.

Practical implications:

If in any doubt whether screening is required, refer to the Secretary of State for a definitive response. Even if planning has been granted you need to be wary of the possibility of someone applying to the Secretary of State (such as a disgruntled neighbour).

Concerns have been raised that this process will be used as a tool to slow down development. Usually however an application for judicial review would need to be made within six weeks of the planning permission being granted unless exceptional circumstances can be established (in this case, the six week time limit was extended). You therefore need to bear this in mind when entering into a contract conditional on planning and take account of the possibility of this sort of challenge.

Tree Preservation orders – what is a tree?: Distinctive Properties (Ascot) Ltd v Secretary of State Communities & Local Government & Another

Key points:

  • Local Planning Authorities (LPAs) can make a Tree Preservation Order (TPO) if it is expedient in the interests of amenity to make provisions for the preservation of trees or woodlands 
  • Landowners are under duties to plant another tree in the same place of an appropriate size/species as soon as reasonably possible
  • The meaning of ‘tree’ has not previously been defined
  • A tree is now believed to include seedlings and saplings but not seeds

DP owned a 16 acre site which included two areas of woodland. The TPO did not specify any individual trees or groups of trees just the protected area of woodland.

In 2012 contractors clear-felled two acres within the woodland subject to the TPO. In 2014, the LPA served a Tree Replacement Notice, (TRN) alleging 8,000 sqm. of woodland had been removed in breach of the TPO.DP owned a 16 acre site which included two areas of woodland. The TPO did not specify any individual trees or groups of trees just the protected area of woodland.

The TRN set out that DP had to plant a tree for every one that had been removed, and estimated that 1,280 trees would need to be replaced at a spacing of 2.5 m x 2.5 m. DP appealed arguing that only 27 stumps were visible.

The LPA argued that because the area of woodland was ‘comprehensively destroyed’, it was impossible to know how many trees, including seedlings and saplings, had been removed.

DP’s appeal was dismissed: the aim of the Notice was to secure the re-instatement of the woodland. The court also found that TPOs over woodland, rather than specific trees, protect all the trees in that area – even if they are not in existence at the time the TPO is made. Practical implications:

It may be difficult to establish exactly how many trees have been removed without a survey of the woodland before work is undertaken. The definition of tree is not limited by reference to size, so includes essentially anything which can be identified as a species which will take the form of a tree.

Any landowners wishing to remove trees that are subject to TPOs should therefore make sure they keep an accurate record of the number and type of trees they remove otherwise they could find themselves having to replace more trees than they actually remove.

TAX TIPS

VAT - zero-rating on protected buildings: Carson Contractors v HMRC

Key points:

  • Protected buildings are listed buildings or historic monuments which are or will become a dwelling or number of dwellings or are intended for use solely for a residential or charitable purpose after the reconstruction or alteration
  • Supplies of construction services for approved alterations to ‘protected buildings’ are zero-rated, provided the building is and will remain a dwelling/number of dwellings and certain specified conditions are satisfied, e.g:
    • the dwelling comprises self-contained living accommodation;
    • there is no provision for direct internal access from the dwelling to any other dwelling or part of a dwelling;
    • the separate use or disposal of the dwelling is not prohibited by the terms of any covenants, statutory planning consent or similar provision

A house and a barn were in the same ownership and in close proximity to each other. Both the house and the barn were listed.

The properties were invoiced as one property for council tax, shared a single postal address and post box, and had a common water supply, although the properties did have a separate electricity supply after the barn was developed.A house and a barn were in the same ownership and in close proximity to each other. Both the house and the barn were listed.

The owner applied for planning permission which was granted subject to a Section 106 Agreement which prohibited separate disposal of the barn from the house.

CCL were not aware of this prohibition and zero-rated their invoices for the conversion works to the barn. HMRC said that the zero-rating was not available and assessed CCL to VAT on that basis.

The Tribunal found that the barn was a 'dwelling' in its own right and not an extension of the main house. As the section 106 Agreement prohibited a separate disposal of the barn, it was not a protected building. A restrictive covenant on the title would have also led to the same conclusion. Practical implications:

Be aware of the VAT position when carrying out works, or having works done, in these circumstances. If in doubt, speak to a member of our Tax Team for further advice.

IN CASE YOU MISSED IT...

We have recently published the following articles on our Real Estate Blog and rather than repeat them here, we’ve included some links so you can see them in full: