Key cases this year include:
- Court allows buyer to rescind contract despite ambiguous drafting
- Address for service of RTM claim notice
- Scope of all reasonable endeavours and good faith obligations
- Business tenancy renewal rent where the property and lease terms were unusua
- Use of notices to prevent easements arising by prescription
- Enforceability of restrictive covenants in building schemes
- Remedy where breach of undertaking not to obstruct light
- Presence of tenant’s chattels frustrates vacant possession on break
- Should the superior landlord or intermediate landlord consult subtenants under section 20 of the Landlord and Tenant Act 1985?
- Were short-term lettings a breach of the covenant not to occupy other than as a private residence?
- Pitches at a fair: lease or licence?
- Collective enfranchisement: where revocable licences become irrevocable
- No obvious mistake in unusual commercial rent review provisions
1. Court allows buyer to rescind contract despite ambiguous drafting
On 23 July 2010 the buyer, McLagan Investments Limited, entered into a conditional sale agreement to purchase a property from the seller, Dooba Developments Limited, for £12 million. The agreement provided that completion was to occur after one of two dates. The case centred upon the ‘Unconditional Date’ which was defined as “the date upon which the last of the Conditions is discharged by satisfaction or waiver in accordance with the provisions of Schedule 4”. There was also a longstop date.
The contract stipulated four conditions, only three of which had been satisfied at the longstop date. McLagan subsequently served notice on Dooba to rescind the agreement. Dooba disputed this and the matter proceeded to trial on the proper construction of the relevant rescission clause.
The terms of the relevant clause were:
“…if all of the Conditions have not been discharged… by the longstop date then either Asda or Dooba may rescind this agreement by giving the other not less than ten working days’ notice.”
McLagan argued that this should be construed as meaning that either party could rescind if any one of the four conditions remained satisfied at the longstop date. Dooba argued that all four conditions would need to remain unsatisfied at the longstop date in order for the contract to be rescinded.
In January, the court took a commercial rather than literal approach to its summary judgment decision. Applying the principles set down in Arnold v Britton, it acknowledged that although both options were feasible linguistically, having considered the intention of the parties in the light of what a reasonable reader of the clause would understand the parties’ intention to be, McLagan's interpretation was to be applied. Accordingly, as one of the conditions remained unsatisfied at the longstop date, McLagan had been entitled to rescind the contract.
In November, The High Court overturned that earlier decision and applied a strict interpretation of the drafting based on grammatical correctness. It determined that the right to rescind only applied where none of the conditions had been discharged by the longstop date. Therefore, the buyer could not rescind unless it could show that all four conditions remained unsatisfied.
Dooba Developments Ltd v McLagan Investments Ltd  EWHC 151 (Ch) (29 January 2016)
Dooba Developments Ltd v McLagan Investments Ltd  EWHC 2944 (Ch) (23 November 2016)
2. Address for service of RTM claim notice
The RTM company served a claim notice on the landlord on 11 July 2014. The landlord served a counter-notice on 14 August 2014 which stated that all future correspondence in relation to that notice should be sent to its solicitor’s address. The RTM company did not pursue the claim any further.
Following the aborted claim, the landlord served service charge demands on the leaseholders. The demands provided its registered office as the address for service. When the RTM company served a second claim notice, it chose to serve that notice upon the Landlord's registered office. The landlord served a counter-notice on the basis that the second claim notice was invalid having not been sent to its solicitor’s address.
The Upper Tribunal held that the proper interpretation of the 2014 counter-notice was that it was only notifying the RTM company that communications in relation to the subject matter of the first claim notice (and any further notice in relation to the subject matter of the first claim notice) should be sent to the landlord's solicitors.
The Upper Tribunal held that the CLRA 2002 contemplated that the RTM process would involve a lot of communication between the landlord and the RTM company. A reasonable recipient of the 2014 counter-notice would therefore consider this and interpret it as referring only to the first claim notice rather than covering subsequent claim notices too. They would also assume that if the landlord wished future claim notices to be sent to it at a specific address, that it would not do so in the middle of a counter-notice, but would send a separate letter or formal notice.
Gateway Property Holdings Ltd v Ross Wharf RTM Company Ltd  UKUT 97 (LC) (29 February 2016)
3. Scope of all reasonable endeavours and good faith obligations
The Court of Appeal considered the effect of an ‘all reasonable endeavours’ and an express ‘good faith’ obligation in the context of a dispute regarding an agreement to sell the Bristol Rovers' Memorial Stadium to Sainsbury's supermarkets.
The court considered whether Sainsbury’s refusal to allow Bristol Rovers to launch its own planning appeal (after Sainsbury's own appeal had failed) was a breach of the Agreement between the parties. Specifically, the court considered whether Sainsbury’s obligation to use all reasonable endeavours to procure an acceptable planning permission and to act in good faith in relation to its obligations meant that it should consent to another party taking steps (at their own cost) to achieve the desired outcome.
The court took the view that, given Sainsbury's was not obliged to make a further planning appeal, it could not have been the intention of the parties that Sainsbury's should be obliged to consent to such an appeal by Bristol Rovers, even where it was demonstrated that this appeal would have succeeded.
In reaching this conclusion, the court determined that the scope of 'all reasonable endeavours' and 'good faith' obligations were restricted by Sainsbury's specific obligations under the Agreement. The decision clarifies that while all reasonable endeavours clauses can potentially impose wide-ranging obligations on a party, they cannot be relied upon to impose duties where the agreement already seeks to define the extent of the parties' obligations.
Bristol Rovers (1883) Ltd v Sainsbury’s Supermarkets Ltd  EWCA Civ 160 (17 March 2016)
4. Business tenancy renewal rent where the property and lease terms were unusual
In 2001 the parties agreed a lease of a property for use as a community centre. The 7-year lease was at an annual rent of £1, along with payments in respect of sums expended by the landlord in insuring the property in accordance with the lease.
The property was in poor condition and the lease included an obligation upon the tenant to carry out various works within a year of the grant. If the tenant failed to do so, the rent would be increased to £1,200.
Following expiry of the lease in 2008, the parties entered into negotiations for a new tenancy. The parties could not agree the new rent with the landlord seeking a commercial rent and the tenant seeking over £20,000 less.
The claim proceeded to court with the parties having both appointed experts. The rental sought had been revised so that the tenant argued for a rent of £1 per annum in line with the original lease whilst the landlord's expert suggested a yearly rent of £16,000.
The judge found both of the parties' expert evidence to be unreliable. She found that she could not ascertain from the comparables provided whether there were similar unusual or uncommercial terms that could be found in the original lease. Accordingly, without reliable evidence as to the current market rent, the judge instead relied on the passing rent, and ordered a rent of £1 per annum.
The landlord subsequently appealed on the basis that the judge should have either discounted the comparable rent or ordered a new trial. The High Court disagreed and upheld the decision on the basis that where the judge found the expert valuation evidence to be unsatisfactory she was not wrong in law to give weight to passing rent rather than carrying out her own investigation.
Flanders Community Centre v London Borough of Newham  EWHC 1089 (CH) (8 April 2016)
5. Use of notices to prevent easements arising by prescription
The respondents (Mr and Mrs Bennett) bought a club house and car park in 2010. In 2012, the respondents let the club house and car park to tenants, who obstructed access to the car park from the road. This prevented all vehicular access, but not access on foot. The appellants (Mr and Mrs Winterburn) owned a fish and chip shop, which was situated near the car park's entrance. At all times until 2007, there was a sign at the entrance to the car park that indicated that the car park was for private use only. This sign was clearly visible to anyone entering the disputed land.
The appellants claimed that they had acquired a right to park cars and other vehicles belonging to themselves and their suppliers on the disputed land by prescription, under the doctrine of ‘Lost modern grant.' The First Tier Tribunal (Property Chamber) held that the appellants had successfully established their claim, but the Upper Tribunal allowed the respondent's appeal.
The Court of Appeal dismissed the appeal. In order to establish an easement for parking by prescription, the appellants had to show 20 years' uninterrupted use 'as of right.'
The Court of Appeal held that where a land owner has made it ‘obvious' through clearly visible signs, the unauthorised user cannot be said to be ‘as of right.’ Putting up a sign was held to be a peaceful and inexpensive way of making clear that land is private and not to be used by others. The Court of Appeal did not accept that those who ignore such signs should be entitled to obtain legal rights over affected land.
Winterburn v Bennett  EWCA Civ 482 (25 May 2016)
6. Enforceability of restrictive covenants in building schemes
Birdlip Ltd and Hunter owned adjoining properties. Birdlip obtained planning permission to build two new detached houses on its land. Birdlip's land was subject to restrictive covenants imposed by indentures in 1909 and 1910. These included a covenant limiting the number of houses that could be built on the land which Hunter sought to enforce. If Hunter was successful in maintaining the covenant Birdlip would be prevented from proceeding with its intended development. Birdlip therefore sought a declaration that the restrictive covenants were not enforceable.
Hunter claimed that they were entitled to enforce the restrictive covenants against Birdlip as the covenants formed part of a scheme of development that was maintained by mutually enforceable covenants. This was evidenced by conveyances between 1906 and 1914 of 18 other properties in the area which contained similar but not identical covenants. Furthermore, the enforceability of those covenants had not been questioned when others had made applications to the Lands Tribunal to vary the covenants.
The court held that a building scheme had been established over an area shown on a plan from 1908. However, the Court of Appeal disagreed and held that a building scheme had not been established. Their rationale was based upon the premise that for a building scheme to exist, you must establish an area of land to which the scheme clearly relates and a common intention of both the original seller of the land and the various buyers that the covenants are to be mutually enforceable by all the buyers against one another (as opposed to by just the seller). The Hunters were unable to provide sufficient evidence to establish those criteria. As a result, the restrictive covenants were not enforceable.
Birdlip Ltd v Hunter and another  EWCA Civ 603 (28 June 2016)
7. Remedy where breach of undertaking not to obstruct light
Scandia Care and Ottercroft owned adjoining properties. In July 2016 Scandia began work on building a storeroom and a new metal staircase as part of a small mixed use development. Ottercroft operated a restaurant from its premises and complained that the new metal staircase obscured the kitchen windows. Ottercroft brought a claim.
The parties' experts agreed that the value of the loss of light for Ottercroft's kitchens amounted to £886 and that the infringement involved was minor in extent. The cost to Scandia of removing and relocating the staircase was in the region of £6,000.
The County Court Judge ordered a mandatory injunction requiring Scandia to remove or alter the staircase. In reaching this decision, the judge placed significant weight on the conduct and attitude of Scandia. In particular, one of Scandia's directors had acted in an unneighbourly and high handed manner throughout and had been aware that Ottercroft's light would be infringed but proceeded regardless, even after Ottercroft threatened legal proceedings. The judge also noted that Scandia had reneged on its earlier undertakings not to interfere with Ottercroft's light and had undertaken the work at a time when they knew Ottercroft's premises would be vacant.
Scandia's subsequent appeal was dismissed on the basis that it was clear that the new staircase did infringe Ottercroft's rights of light, there was evidence that it was feasible to move the staircase and the judge was entitled to consider the conduct of Scandia in exercising his discretion. An injunction in the circumstances was not only just on the facts, but served as a warning to other developers not to act in such a way.
Ottercroft Ltd v Scandia Care Ltd  EWCA Civ 867 (06 July 2016)
8. Presence of tenant’s chattels frustrates vacant possession on break
The NHS sought to terminate its lease of some office space by serving a break notice on its landlord, Riverside. The break clause in the lease provided that a break would only be effective "if the tenant gives vacant possession of the premises to the landlord". On the break date, partitioning, kitchen units, window blinds and other such items were left in the premises. Riverside therefore argued that the NHS had not given vacant possession of the premises and that the break was invalid.
The key issue for the court was whether the items were fixtures or tenant’s chattels. If the items were chattels then vacant possession had not been given, the break was invalid and the lease continued. The test for distinguishing chattels and fixtures centres on the degree of annexation and the object/purpose of annexation.
The court determined that the items were chattels and not fixtures, because they were only "slightly attached" to the premises. Focussing on the partitioning, the court considered that the items could be removed intact to be re-used elsewhere, and were installed for the benefit of the NHS (not Riverside). The items did not provide a lasting improvement to the premises, and accordingly, were not fixtures. In addition, the partitioning substantially interfered with Riverside's right to possession of a substantial part of the premises.
As an aside, the court noted that even if the items had been fixtures, the NHS had still not complied with the break clause. This was because the definition of “premises” in the lease specifically excluded partitioning and tenant’s fixtures. The items left therefore did not form part of the premises, and had to be removed for the break to be effective.
Riverside Park Ltd v NHS Property Services Ltd  EWHC 1313 (Ch) (27 July 2016)
9. Should the superior landlord or intermediate landlord consult subtenants under section 20 of the Landlord and Tenant Act 1985?
Residential blocks of flats formed part of the Brunswick Centre, a mixed use complex in London. The matter before the Upper Tribunal included a question as to who was required to comply with the statutory consultation requirements under Section 20 of the Landlord and Tenant Act 1985.
The matter began on 11 June 2004 when the freeholder gave notice to the head tenant that it intended to carry out major works at the Brunswick Centre. The head tenant did not send out any notices to the subtenants. On 17 June 2004 the freeholder sent out letters to the sub-tenants which enclosed copies of its letter to the head tenant which invited observations by 14 July 2004 (30 days from the date of the letter to the head tenant).
On 24 September 2004 the freeholder sent the second stage consultation notice to the freeholder. On this occasion, the head tenant did forward on a copy of that notice to the subtenants and requested observations within 21 days.
The works were duly carried out in 2005 and were completed in 2006. Further remedial work was required and the subtenants were unhappy as to a number of issues relating to the quality of the works.
A subsequent application from the subtenants proceeded to the Upper Tribunal and considered whom the burden of sending out the consultation notices fell.
The Upper Tribunal held that the head tenant and the subtenants (who ultimately were responsible for paying the service charge) should have been consulted and that it was for the freeholder as the entity with the intention to carry out the qualifying works to have carried out the consultation and send out the relevant notices directly.
Leaseholders of Foundling Court and O'Donnell Court v The Mayor and Burgesses of the London Borough of Camden and others  UKUT 366 (LC) (10 August 2016)
10. Were short-term lettings a breach of the covenant not to occupy other than as a private residence?
The tenant owned a long lease of a flat in a purpose-built block of flats in London. The lease contained a covenant not to use the flat (or permit it to be used) for any purpose whatsoever other than as a private residence.
The tenant chose to advertise the flat on the internet for short-term lettings. In twelve months the tenant let the property on seven occasions on short term lettings that ranged from only a day or two to weeks at a time. The majority of those staying in the flat were business visitors working in the city and, over the year, the flat was said to have been let out for around 90 days.
The landlord, Fairfield Rents Ltd, subsequently sought a declaration that the lettings constituted a breach of the user covenant in the lease. The tenant stated that she had been residing in the flat three or four nights a week and had, throughout the year, paid all of the outgoings of the flat including the council tax and utility bills.
The Upper Tribunal found in the landlord’s favour. Although the covenant did not require the flat to be the tenant's only or main home (because the clause referred to use as 'a' private residence rather than 'the'), there had to be a degree of permanence for a property to be used as an occupier's private residence. Transient occupation in which the occupier resides for a few nights during the week or for a weekend would not suffice.
Accordingly, in the context of the grant of the lease, and the nature of the intended relationship between the parties and taking account the lease obligations, the tenant had breached the covenant in the lease by granting very short term lettings.
Nemcova v Fairfield Rents Ltd  UKUT 303 (LC) (06 September 2016)
11. Pitches at a fair: lease or licence?
The claimant, Mrs Holland, was a fairground ride operator who had been granted a licence to use two pitches on the fairground for the duration of the St Giles Fair held in Oxford city centre. The defendant, Oxford City Council, was the licensor.
In order to secure her plot each year, Mrs Holland was required to send an application form and annual fee to the council identifying both the type of attraction proposed and the site sought. In 2009 a dispute arose in respect of an alleged encroachment by Mrs Holland's ride. The council subsequently reduced the size of the plot given to Mrs Holland. Mrs Holland proposed to bring a new ride called the 'Cyclone'. This was too large for the plot and could not be accommodated.
Mrs Holland brought a claim for both a declaration that she had an annual periodic tenancy of the two pitches and also for damages for breach of the covenant for quiet enjoyment. The council claimed that Mrs Holland's interest was only a licence, which was issued every year.
The court considered the Conditions of Letting which governed Mrs Holland's occupation of the pitches and determined that no tenancy had been created as Mrs Holland did not have exclusive possession. The court highlighted that there was no right of re-entry or right for the council to enter onto the pitch. It was held that this demonstrated that the council intended that it should have free access to the pitches and had not intended to exclude itself.
Accordingly, without exclusive possession, Mrs Holland was a licensee only. This view was not affected by the existence of correspondence and documentation which used language such as 'tenancy' and 'let'. As a licensee, Mrs Holland did not benefit from the implied covenant for quiet enjoyment and so was not entitled to damages.
Holland v Oxford City Council  EWHC 2545 (Ch) (17 October 2016)
12. Collective enfranchisement: where revocable licences become irrevocable
On 3 July 2015, the participating tenants in a collective enfranchisement gave an initial notice to the freeholder proposing that a nominee purchaser should acquire the relevant parts of the premises (including the garden) as well as various rights in connection with the acquisition of the building, including a right of way through a gate in the rear wall of the garden and over the passageway leading to the public highway.
The freeholder served a counter-notice on 17 September 2015 admitting the entitlement to acquire the freehold of the building but disputing the right to the freehold of the garden. On the basis that the participating tenants' leases only included a revocable licence to use the garden in common with others. An application was made to the Upper Tribunal to resolve the dispute.
The tribunal concluded that the freeholder was required to offer the qualifying tenants an irrevocable right to use the garden in order to avoid transferring the freehold of the garden to the nominee purchaser. To comply with section 1(4)(a), the rights offered by the freeholder must be permanent, which means free of any condition for termination.
The tribunal held that if a qualifying tenant enjoys revocable rights under a lease, the requirement of permanence requires that the rights must become irrevocable on the completion of the transfer. This is consistent with the underlying rationale of the enfranchisement process – namely that it replaces limited leasehold rights with permanent rights.
The tribunal also noted that LHRUDA 1993 allows the landlord to be compensated for these changes by way of the premium payable by the participating tenants.
4-6 Trinity Church Square Freehold Ltd v The Corporation Of The Trinity House Of Deptford Strond  UKUT 484 (LC) (08 November 2016)
13. No obvious mistake in unusual commercial rent review provisions
This matter concerned the interpretation of rent review provisions. The relevant provisions in this case were contained in a reversionary lease of office premises. The lease allowed for increases of rent on the fifth and tenth anniversaries of the term commencement by indexation of the passing rent. In summary, the calculation for the reviewed rent was as follows:
Passing rent x RPI index figure (for the month prior to the review date) / 193.1
The number 193.1 was defined in the reversionary lease as the “Base Figure”, which was the RPI index figure in September 2005. The issue was that the rent in that particular month had been reduced by nearly £200,000 per annum under an existing lease. This reduction had occurred as part of the wider transaction by which the reversionary lease had also been granted.
The tenant argued that the rent review provisions indexed the passing rent under the reversionary lease, not the reduced rent payable under the existing lease. This was an obvious mistake. The landlord argued that there was no mistake and the provisions were clearly stated.
The court rejected the tenant’s case and placed emphasis on reviewing the terms of the transaction as a whole. It held that although the rent review provisions were atypical and provided for a greater increase in rent than standard indexation would have produced, it did not follow that the provisions were an obvious mistake.
The court also held that non-binding heads of terms were inadmissible as an aid to interpretation of the lease. This is consistent with the general rule which prohibits referring to pre-contract negotiations (subject to certain exceptions).
Elmfield Road Ltd v Trillium (Prime) Property GP Ltd  EWHC 3122 (Ch) (08 December 2016)