Room with a view - July 2017

Clear Legal Advice Cambridge Chelmsford Ipswich Norwich www.birketts.co.uk/property Room with a view July 2017 Room with a view Welcome to the July 2017 issue of Room with a view In this issue Minimum Energy Efficiency Standards (MEES): We need to talk Brown is the new black: Brownfield Registers and Permission in Principle Restrictive covenants: to modify or not to modify, that is the question The truth, the whole truth and nothing but the truth I didn’t know you did that! Charity Property Team focus LinkedIn Birketts LLP Twitter @birkettsllp With property measures relegated to the back of the Queen’s Speech you could be forgiven for thinking that property was not a government priority. Perhaps so, but the latest economic data suggests that property still underpins much of the UK economy. The upside (if you can call it that) of the devaluation of sterling following the Referendum last summer is that more foreign investment than ever is pouring into buying UK real estate, including some of the largest property investment deals ever recorded. Against that backdrop it’s a case of ‘something old something new’ in this summer edition of Room with a view. Property development partner Bhargav Trivedi looks back at the thorny subject of restrictive covenants and considers some alternate approaches to how these might impact development. Litigator Peter Hosking gives us an overview of the law on misrepresentation, what it is and how to avoid making one. Planners Naomi Sunkin and Edward Long look forward to yet more changes to planning law with a look at the proposed new Brownfield Registers and an insight into how permission in principle might work. I’ve added a few words on the subject of energy efficiency and how this will affect commercial properties once the first stage of the new MEES regulations take effect next April. And in a complete change of tack we feature another of our specialist teams – this time in the shape of the Charity Property Team. Do enjoy the rest of the summer, here’s hoping for a little longer to enjoy the sunshine... Marcos Toffanello Head of Knowledge Management 01473 299142 marcos-toffanello@birketts.co.uk Clear Legal Advice Cambridge Chelmsford Ipswich Norwich www.birketts.co.uk/property Room with a view July 2017 Minimum Energy Efficiency Standards (MEES): We need to talk With less than a year to go until the first implementation date for the Minimum Energy Efficiency Standards (MEES) there are still many commercial property owners who are either ignorant of these regulations entirely or, if they are aware, are labouring under misapprehensions about how the regulations apply. Although the Department for Business, Energy and Industrial Strategy issued further guidance in February this year, much still remains unclear or uncertain but nonetheless property owners should take a cautious approach to avoid being caught out at a later date. Some common myths You cannot let a property which has either an ‘F’ or ‘G’ EPC rating This is a common misconception but certainly it is less straightforward letting a building with a particularly poor energy efficiency rating. Whilst the underlying intention of MEES is to ensure that landlords do carry out works to improve the energy efficiency of a building wherever possible, it is likely to be the case that, regardless of the works undertaken, certain buildings will simply never be able to achieve a higher efficiency rating. That being the case, MEES does not prevent a letting of a building in those circumstances. Nonetheless, there is a wider issue about the marketability of under-performing properties and the extent to which a low rating will impact capital and rental values. I’ve got an ‘E’ rated EPC for my building so I’m alright Again the answer may be ‘not necessarily’. It is correct that an E rating is the minimum requirement to be able to grant a new tenancy from 1 April 2018 (and the minimum level required to continue a lease of a building post 1 April 2023) but a note of caution needs sounding. Do bear in mind that an EPC rating has a shelf life of ten years at most, so those commissioned in the early days of the EPC regime may now be about to reach expiry. As overall efficiency standards have generally increased over time, there is no guarantee that a renewal EPC (which will almost certainly be required for the grant of either a new lease or the renewal of an existing lease to an occupying tenant) will achieve the same rating and consideration as to whether or not works need carrying out to achieve a higher rating will need expert input where appropriate. Furthermore, given that the underlying purpose of all energy efficiency legislation is to improve standards rather than reduce them over time, there is a real likelihood that the bar could be raised to a higher EPC rating standard in the future. It doesn’t apply to listed property This is another popular misconception, not assisted by the fact that neither the Regulations nor the government’s recent guidance is terribly clear on the issue. Certainly the mere existence of a listing entry does not automatically exempt the property from the requirement to satisfy MEES (or have an EPC certificate). Rather, it may be that a building owner is able to avail themselves of particular exemptions in relation to the carrying out of energy efficiency works where the works would adversely impact the heritage value of the property or could cause significant damage to it. However, the simple need to obtain Listed Building Consent to any proposed works is not, of itself, a ground not to carry out the works themselves, although the inability to secure that consent would be grounds for exemption! “…an EPC rating has a shelf life of 10 years at most, so those commissioned in the early days of the EPC regime may now be about to reach expiry” Marcos Toffanello Head of Knowledge Management 01473 299142 marcos-toffanello@birketts.co.uk Clear Legal Advice Cambridge Chelmsford Ipswich Norwich www.birketts.co.uk/property Room with a view July 2017 I am able to claim an exemption, so presumably that’s the end of it? We have not, so far in this article, really spent much time on the exemptions process, not least as the rules relating to obtaining exemptions are themselves fairly complicated. Nonetheless, the one thing that is certain is that none of the exemptions last forever. At best, an exemption (typically that all energy efficiency works have been done and the rating still cannot be improved or the landlord has been unable to obtain a necessary third party consent in order to carry out the works) are limited to a period of five years. After the end of that period (and in some cases before if the tenant was the party objecting and they then vacate the property) the landlord has to reappraise the situation and apply to register a further exemption. Furthermore, the claiming of an exemption is personal to the landlord of the property, not the premises themselves. Accordingly, if the property changes hands, then the incoming landlord has the benefit of being able to claim a temporary exemption (limited to a maximum of six months) to work out what is going on with the property, before they too have to either undertake works or seek to claim an exemption for themselves. By any analysis, this is not a once and for all process and will require regular review which can be a time consuming process where a landlord has a substantial portfolio of properties. I am a tenant, so it doesn’t affect me In general terms this is correct, in as much as obligations to comply with MEES fall on landlords rather than tenants. Nevertheless, where a tenant is proposing to sublet premises then it will meet the regulatory definition of a ‘landlord’ and it then needs to consider the impact of MEES on any proposed subletting arrangements. It may be able to avail itself of an exemption (particularly where the tenant’s own landlord is the party which refuses to give consent to energy efficiency works being carried out), but the mere fact that a landlord has excused itself from carrying out works does not automatically pass to a tenant for the reasons set out above. The only context where MEES is not directly applicable is on a sale of a property (or the corresponding assignment of a lease). There is no obligation to meet the requirements of MEES on such a disposal but the prospective buyer and/or assignee will very much be interested in energy efficiency matters as they will inherit the situation from the seller/assignor and it is quite possible that responsibility for MEES compliance will form part of the overall contractual negotiations on a disposal of a property. In spite of the fact that the regulations themselves have been in existence for some time, even the recent guidance has done little to clarify a number of practical questions for property owners and occupiers. Unfortunately, we expect this to be an area of law which will be a ‘watch this space’. So far as anyone can be certain about anything, the one thing that we may be able to confidently predict is that these regulations will be unaffected by the Brexit negotiations. Although the underlying regulatory framework relates to European regulations, the MEES regulations are incorporated directly into UK law and given sensitivities around environmental issues generally, it seems unlikely that any government will hold much enthusiasm for dismantling regulations which have impact beyond our membership of the single market. “...the claiming of an exemption is personal to the landlord of the property, not the premises themselves.” Clear Legal Advice Cambridge Chelmsford Ipswich Norwich www.birketts.co.uk/property Room with a view July 2017 Brown is the new black: Brownfield Registers and Permission in Principle The Town and Country Planning (Brownfield Land Register) Regulations 2017 and Town and Country Planning (Permission in Principle) Order 2017 have introduced the requirements for Brownfield Registers (Registers) and the new Permission In Principle regime (PIP), and came into force mid-April 2017. Brownfield Registers Local Planning Authorities (LPAs) are now required to prepare and maintain registers of brownfield land within their jurisdiction that is suitable for residential development. Once compiled, LPAs are required to review Registers at least once a year. Sites listed in these Registers can be counted towards the LPA’s five year housing supply. LPAs have until the 31 December 2017 to compile their Registers, which the government states to be a ‘realistic timescale’. Given the range of pressures on LPAs, we will have to wait to see how many do meet this deadline. The stated purpose of Brownfield Registers is to provide up to date, publicly available information on brownfield land that is suitable for housing, irrespective of the planning status of the site. The Regulations set a process for identifying suitable sites, but we await further technical guidance on the format of the Registers. The government intends to publish the guidance this summer. There will be two parts to the Registers: Part 1 will contain the list of brownfield sites; Part 2 of the Register is for sites that the LPA considers should be granted PIP. If the council considers that PIP should be granted for a site, the council is then required to enter that site in Part 2 of the Register. Including a site in Part 1 of the Register does not automatically mean it will be granted PIP . It is intended that this new regime will encourage further development on previously used land, rather than on greenfield sites. Permission in principle The intention of PIP is to give developers more certainty in respect of the principles of residential development on brownfield sites. Development cannot, however, commence until technical details consent is obtained. This does (at least in theory) appear to be a positive new approach. The in-principle matters are limited to use, location and amount of development only. The intention is to settle these matters at an early stage in the development process. It is hoped that, for certain sites, this will reduce the need to work through a protracted and costly outline consent/reserved matter process. However, it is not anticipated that it will entirely replace the usual planning process in respect of all brownfield sites. The purpose of PIP is for the developer to incur less cost and time upfront and to provide the necessary comfort to progress with development proposals knowing that the site has PIP. As is so often the case, there are exceptions to the new regime. Development which falls within Schedule 1 of the Environmental Impact Assessment Regulations 2011 has been screened as EIA or where prohibited under habitats protection legislation, cannot obtain PIP. Naomi Sunkin Solicitor 01223 326601 naomi-sunkin@birketts.co.uk Edward Long Solicitor 01223 326633 edward-long@birketts.co.uk “The intention is that Brownfield Registers and PIP will speed up development and unlock brownfield sites for housing and as such appears to have been welcomed by developers.” Clear Legal Advice Cambridge Chelmsford Ipswich Norwich www.birketts.co.uk/property Room with a view July 2017 If the site does obtain PIP, it will be placed on Part 2 of the Register. It will then be for the council to determine the technical details consent application at a later date, in accordance with the National Planning Policy Framework and the development plan policies, as is currently required for all planning applications. Prior to the site being entered on to Part 2 of the Register, there will be a statutory consultation period. Once an application for technical details has been submitted, LPAs will only need to re-consult in cases where they identify a particular need to do so. The intention is that Brownfield Registers and PIP will speed up development and unlock brownfield sites for housing and as such appears to have been welcomed by developers. Critics are however concerned that since this new regime entails more work for councils, the rate of development may in fact be slower. Its ultimate success will depend on whether LPAs have sufficient funds and resources to compile and maintain the Registers - we await further detailed guidance this summer. Restrictive covenants: to modify or not to modify, that is the question? Restrictive covenants are an uncomfortable fact of life for anyone planning to develop land. How they can be resolved (or avoided) is rarely a one size fits all approach. In the case of covenants which date back many years it is often the case that the only way to ‘deal’ with them is to purchase a title indemnity policy and hope for the best. If nothing else the policy can act as a ‘litigation defence fund’ in the hopefully unlikely event that someone comes forward claiming the benefit of the covenant and seeking to prevent or delay the prospective development. But what can be done where the covenant is more recently imposed; is the best course to try and negotiate a way out of it, or to take a more ‘nuclear’ option? A couple of recent cases give some clues as to the approach the courts might take if the matter finds its way before them. ‘The thin end of the wedge’ Where a restrictive covenant does prevent a particular development going forwards it is possible for the affected landowner to apply to the courts for an order to modify or release the covenant (known as a ‘s.84 application’ referring to the relevant section of the Law of Property Act 1925). One of the common grounds of objection from neighbouring landowners is that if the release is allowed (and the applicant will still have to show that the covenant meets a threshold test that it is obsolete or otherwise does not secure benefits of real value), then this will push open the door to a multitude of claims from adjoining landowners, all claiming that the covenant affecting their land should be similarly released. In recent times the courts have been more ‘pro-development’ in their approach to this argument where they feel that an affected landowner could be adequately compensated for the loss of amenity to their property caused by the development. In these cases1 payouts ranged from as low as £2,000 up to £25,000. However, to illustrate that the court can reach the opposite conclusion, another covenant came up for consideration in the recent Court of Appeal decision in Stafford-Flowers v Linstone Chine Management Co Ltd2 . Here the property owner in question occupied a holiday home on the Isle of Wight. As is quite common in such schemes the property was subject to a restriction, both on the titles to the Bhargav Trivedi Partner 01603 756505 bhargav-trivedi@birketts.co.uk Clear Legal Advice Cambridge Chelmsford Ipswich Norwich www.birketts.co.uk/property Room with a view July 2017 “It is appropriate for the Tribunal to make it clear that it is not inclined to reward parties who deliberately flout their legal obligations in this way.” 1 See for example Re Perkins [2012] UKUT 300 (LC), Re Laav [2015] UKUT 448 (LC) and Re Lynch [2016] UKUT 488 (LC) 2 [2017] EWCA CIV 202 plots and in a planning consent, prohibiting year round occupation of the properties as a dwelling. Nonetheless in breach of this the owners remained in permanent occupation. After a number of years passed they applied to, and obtained from, the local authority a certificate of lawful use for planning purposes. They then relied on the planning ‘release’ as a ground to modify the restrictive covenant affecting the plot itself, the application being opposed by the management company which operated the holiday village. Interestingly, the Court of Appeal upheld the first instance judgment not to allow the modification. They found that the ‘thin end of the wedge’ argument held good here, and that to allow the modification in this case could lead to other owners coming forward to modify their own restrictive covenants. Over time this would lead to a fundamental change in the character of the development from a holiday park to a housing estate which the court considered unacceptable. ‘Develop and be damned’ It’s fair to say that it might be considered more high risk to take this approach, but it is one that has been used, especially by larger housebuilders with deadlines to meet and sales targets to reach. Rather than wait for a court determination they have ploughed on with development and then waited to see what comes out of the woodwork later on. Perhaps no one will notice, or objectors won’t really have the stomach for a court battle. Ultimately it seems likely this will come to court at some point, though the results may surprise. In Re: George Wimpey Bristol Ltd’s Application3 a housebuilder began development of an estate in the face of open objections from adjoining owners claiming the benefit of covenants against building which affected part of the site that Wimpey had acquired. By the time the matter came before the court substantial works had been carried out. On the facts the court was satisfied that there were significant benefits to the affected properties by retaining the covenants in place (a depreciation effect of between 7-15% on the most directly affected properties) and so it refused to order a modification, thereby preventing Wimpey (and a housing association which would be acquiring the affordable element of the proposed development scheme) from completing the works. In the words of the Judge “It is appropriate for the Tribunal to make it clear that it is not inclined to reward parties who deliberately flout their legal obligations in this way.” But contrast this with the recent decision in Re Millgate Developments Ltd’s Application4 . Here another developer had obtained planning permission for the development of a residential scheme on a former commercial property. Part of the site (a car park) was similarly affected by a ‘no development’ covenant relating to part of it. The beneficiaries of the original covenant were a local farmer who still had land in the vicinity and a charity which had developed a children’s hospice on land immediately adjacent to the affected site. Whilst there had been negotiations for the formal release of the covenant, discussions had broken down and the developer had continued building out its scheme in breach of the covenant. The residential properties were substantially complete but because the neighbouring owner had started proceedings the developer was unable to discharge its s.106 obligations to transfer the properties to another housing association as they (rightly) refused to take a transfer whilst the covenant issue remained unresolved. Clear Legal Advice Cambridge Chelmsford Ipswich Norwich www.birketts.co.uk/property Room with a view July 2017 On the face of it the case looks startlingly similar to the George Wimpey one, and yet the Tribunal was able to come to quite the opposite conclusion about allowing the modification of the original covenant. Here it found that (tucked away in s.84) was wording to the effect that a covenant could be overridden where it both impeded ‘some reasonable user of the land for public or private purposes’ and that that impediment ‘is contrary to the public interest’5 . Here the tribunal found that the public interest in providing affordable housing for the local community was such an overriding issue that it justified modifying the covenant, even where there were identifiable (and valuable) benefits to the hospice site. However, the release did come at a cost; the developer has had to pay compensation of some £150,000 to the affected landowner to compensate their loss of amenity and to undertake mitigation works to plant trees to screen out the properties and maintain the privacy of the hospice grounds. We hope these cases illustrate that there are no easy answers to the opening question. Careful consideration must be given to all the facts of a given situation to determine the impact of a covenant on proposed development, and the likelihood (and cost) associated with trying to work around it. 3 [2011] UKUT 91 (LC) 4 [2016] UKUT 515 (LC) 5 See s.84(1)(aa) and s.84 (1A) The truth, the whole truth and nothing but the truth We all know how lawyers love a bit of Latin jargon and most conveyancers can manage to remember the phrase caveat emptor (literally ‘buyer beware’). Unfortunately some sellers (and their advisors) believe that the phrase means that they can take a devil may care attitude to providing information to the buyer to enable them to make an informed decision about the proposed transaction. In fact, this is not the case and if a seller ‘misrepresents’ something about the property, then this may entitle the buyer to seek damages or indeed undo the deal after the fact, which can be an expensive and inconvenient process for all involved. So a few minutes understanding what constitutes a misrepresentation and how you might avoid making them, can be time well spent. Is every misrepresentation actionable? Not necessarily. However, in order to know whether or not it is actionable that requires understanding of what one actually is. There are essentially four elements. The first is that there is a material statement of fact (as opposed to an opinion). Secondly the statement of fact must in some way induce the buyer to enter into the contract. Thirdly the statement itself must be false or inaccurate. Finally the buyer must in some way place an element of reliance on that statement (so that a statement which the seller knows to be untrue will not necessarily give rise to the same claims for a misrepresentation). Peter Hosking Solicitor 01473 406314 peter-hosking@birketts.co.uk Clear Legal Advice Cambridge Chelmsford Ipswich Norwich www.birketts.co.uk/property Room with a view July 2017 What about exclusion clauses? Another device much favoured by sellers’ lawyers is to try and protect the seller from claims of misrepresentation by filling the contract with exclusion and limitation clauses which prevent the buyer from being able to rely on any statements which have been made. Do they work? Perhaps the simplest answer to that question is ‘to a point’. It is possible to limit the seller’s exposure to claims for making statements to an extent. However, the clauses which have been upheld are those which relate to the seller making (or allegations that it has made statements) outside of the formal process of enquiries being raised by the buyer’s lawyers of the seller’s lawyers. The court will exclude these ‘representations’ where they are made outside of the strict formalities of contract negotiation. However, the purpose of raising specific pre-contract enquiries of the seller (via its lawyers) is precisely to elicit information about the property which might be relevant to the buyer’s decision to proceed. For that reason it would make nonsense of the conveyancing process if the seller’s conveyancers were able to exclude all liability for a misrepresentation simply because they had put a clause in the contract to that effect. The continuing duty to disclose facts It is also worth bearing in mind that the seller’s obligation to represent facts about the property is a continuing duty. It is not simply the case that they can reply to pre-contract enquiries and that is an end of matters. Another recent case1 illustrates the point rather neatly. In this case the seller was asked a question about whether or not it knew of any problems relating to asbestos affecting the sale property. At the time of giving their replies it had no knowledge of any relevant matters and gave a reply to that effect. However, shortly prior to entering into the proposed lease transaction it received a report on the property indicating that the surveyors had a suspicion of the presence of asbestos within part of the building and that as no adequate asbestos survey had been carried out, that their contractors would not enter the premises at that point. The seller landlord failed to disclose this fact to the buyer/tenant who subsequently became aware of a significant asbestos problem with the buildings when its appointed contractors entered the site to carry out proposed alterations. In the end, the tenant was out of possession of the property for a number of months whilst substantial remedial works were carried out, necessitating the tenant having to find alternative premises at short notice. It successfully claimed for all of these additional costs as well as the costs of carrying out the decontamination works themselves, with the cost to the landlord of somewhere in the order of £1.2m. What if I say nothing at all? You might conclude from the previous paragraphs that perhaps silence is indeed golden and that it is better to say nothing at all than to say something which turns out to be incorrect. Nevertheless, the courts have equally taken the view that it is as possible for a seller to mislead by omission as by commission. Choosing to deliberately not answer questions or to not provide information in circumstances where a party does have relevant knowledge of an issue is just as likely to be treated as a misrepresentation as making an outright factual statement which is incorrect. Furthermore, any well advised buyer is likely to walk away from the deal entirely if it feels that the seller is withholding relevant information. Alternatively, a well-funded buyer may well fancy chancing their arm going after an evasive seller, given that a refusal to answer a question about something on which the seller is much better placed than the buyer to have actual knowledge, is a difficult position to defend. “the seller’s obligation to represent facts about the property is a continuing duty. It is not simply the case that they can reply to pre-contract enquiries and that is an end of matters.” “Choosing to deliberately not answer questions or to not provide information in circumstances where a party does have relevant knowledge of an issue is just as likely to be treated as a misrepresentation” Clear Legal Advice Cambridge Chelmsford Ipswich Norwich www.birketts.co.uk/property Room with a view July 2017 I didn’t know you did that! Charity Property Team focus From charity shop to investment portfolio, most charities will have material interests in property. For many, property will be the single largest asset within their endowment. Very often, interests in property whether for use, occupation or investment, will be governed by legal and practical considerations at something of a remove from property market norms – informed as they will be by a charity’s mission and objects and by the statutory duties of its trustees. Dealing effectively, efficiently and economically with those interests requires property and charity considerations to be brought together in a collaborative and cohesive way and in concert with a charity’s executive and other professional advisers. Our charity property practice offer long-standing specialist expertise in the field of charity property law and practice, advising national and regional operational and grant making charities, charitable property investment funds, independent charitable trusts, ecclesiastical bodies, schools and higher education institutions. Gavin Acheson Partner 01223 326697 gavin-acheson@birketts.co.uk 1 First TowerTrustees Limited v. CDS (Superstores International) Limited [2017] EWHC 891 (Ch) So perhaps in matters of conveyancing, honesty may be the best policy. At the very least, a bit of ‘caveat venditor’ is sensible.