Real estate disputes case review 2014

Real Estate Disputes Case Review 2014
November / December 2013
Ending an assured shorthold tenancy
In 2006 the parties entered into a six month assured shorthold
tenancy (AST) beginning on a Monday with the rent payable
weekly. On expiry of the fixed term a weekly statutory periodic
tenancy arose. The end of each period of the tenancy was
therefore on a Sunday.
On 18 October 2011, the landlord gave the tenant a notice
pursuant to Section 21(1) of the Housing Act 1988 requiring
possession of the property “(a) after 1 January 2012 or (b)
at the end of your period of tenancy which will end next after
the expiration of two months from the service upon you of
this notice”.
The 1 January 2012 was a Saturday and was, therefore, not
the last day of a period of the tenancy. Two months after the
service of the notice would have been 18 December 2011 and
the next Sunday after that was 23 December 2011.
The High Court held that the notice was valid. The tenant duly
appealed arguing that section 21(2) prohibited the service of a
notice under section 21(1) after the expiry of the fixed term.
The Court of Appeal rejected this interpretation and held
that the notice was valid. The Court stated that section
21(1) encompassed cases where a periodic tenancy had
followed the expiry of a fixed term AST. Furthermore, where
a notice such as this one admitted both a valid and an
invalid interpretation, the validating interpretation should be
preferred. Accordingly, the reasonable recipient of the notice
would have understood that the formula (and thereby the
date of 23 December 2011) was valid and that the date of 1
January 2012 was not the last day of a period.
Spencer v Taylor [2013] EWCA Civ 1600
January 2013
Release of sureties
Topland bought a Do It All Site in Morecambe in 2001. The
property was let to Payless DIY Limited for 35 years from
1981 with Smiths standing as Surety. Payless went into
Administration in 2011 with £280,000 owing to Topland.
Topland duly pursued Smiths as Surety.
In the ensuing litigation, Smiths argued that they had not been
party to a Licence for Alterations in 1987 which had involved
substantial alterations including the construction of a new
Garden Centre. Smiths argued that although these changes
did lead to an increase in rent they nonetheless increased
Payless’ repair and reinstatement obligations. As these
changes had been agreed without their consent they were
therefore released from their liability as Surety. At first instance,
Smiths succeeded.
On appeal Topland argued that the definition of Premises
included any additions and alterations so Smiths would have
been aware that these would be possible with the Landlord’s
consent. This argument failed because the lease included an
express prohibition on structural alterations and, as a result,
Smiths could not have foreseen that the Landlord would
depart from this. The Court also agreed that Payless’ (and as a
result, Smiths’) potential liabilities had been increased.
Topland also sought to rely on a clause in the lease that
stated that any neglect or forbearance or granting of time on
the part of the Landlord would not release the Surety. This
argument was rejected on the basis that this was a standard
provision that related to decisions not to immediately enforce
against the tenant for breaches of covenant. Accordingly, this
clause did not cover the granting to the tenant of additional
rights and obligations and Smiths were released from their
obligations as Surety.
Topland Portfolio No. 1 Ltd v Smiths News Trading Ltd [2014]
EWCA Civ 18
February 2014
Rent payable by administrators
The High Court decisions in Goldacre (Offices) Limited v
Nortel Networks UK Limited (in Administration) [2010] Ch
455 and Leisure (Norwich) II Limited v Luminar Lava Ignite
Limited (in Administration) [2012] EWHC 951 (Ch) held that
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Briefing
Real Estate December 2014administrators were liable for full payment of sums due under
a lease as they fell due but not for any contribution to sums
falling due before their appointment. The net effect of this
was that the date of the appointment of the administrators
became essential as it was possible to avoid liability for a
rent period if the administrator was appointed after the rent in
question became due.
In the instant case, Game Stores Group Ltd (GSG) held a
number of leasehold premises. GSG became insolvent and
went into administration on 26 March 2012, the day after the
quarter day on which rent was payable in advance under its
leases. The administrators later sold the business and many
of the assets of GSG to a buyer (Game Retail Ltd (Retail)). The
administrators of GSG gave Retail a licence to occupy many,
but not all of GSG’s properties.
GSG applied to the High Court for directions in relation to the
treatment of the amounts payable under the leases. At first
instance (and applying Goldacre and Luminar), the High Court
held that the administrators were not liable for the rent and
service charge payable on 25 March 2012 but were liable for
rent, service charge and insurance premiums payable on or
after 26 March 2012. Given the importance of these issues,
the landlords were given permission to appeal.
In the Court of Appeal, Lewison LJ stated that the Goldacre
and Luminar decisions had left the law in a very unsatisfactory
state as landlords had been left unable to recover value from
their property in spite of it being occupied for the benefit of the
administration.
The Court of Appeal thus rejected the High Court’s rationale
in the previous cases and applied instead the ‘salvage
principle’. Accordingly, for the period that administrators
occupy the property for the benefit of the administration, the
landlord is entitled to receive the full value of the property,
regardless of the fact that the lease was entered into prior to
the administration.
The liability of administrators will therefore accrue from day
to day for the duration of the administrators’ occupation of
premises for the benefit of the administration.
The Supreme Court have subsequently rejected the application
to appeal the Court of Appeal’s decision.
Pillar Denton Ltd and others v Jervis and others [2014] EWCA
Civ 180
March 2014
Excessively litigious tenant prevented from taking
statutory renewal lease
This case concerned the renewal of a business tenancy under
the Landlord and Tenant Act 1954 which was contested on
the rarely cited ground contained in section 30(1)(c) of the Act.
Cox and Billingsley were protected business tenants with
the right to apply for a renewal lease on expiry of the existing
term. Horne & Meredith Properties, as landlord, opposed this
renewal citing ground s.30(1)(c), namely that there had either
been substantial breaches by the tenants of their obligations
under the tenancy or for any other reason connected with the
use or management of the holding.
The landlord argued that a catalogue of previous litigation
brought by the tenants against the landlord had destroyed the
landlord and tenant relationship and that the right to a renewal
tenancy should therefore be refused. The landlord presented
evidence of 10 separate sets of proceedings over the course
of a 16-year period in respect of alleged obstructions to a right
of way that had been granted to the tenants under the lease.
These claims had resulted in the landlord successfully applying
for a limited civil restraint order against the tenants. The costs
of contesting these numerous proceedings had been vast -
one particular case had led to the landlord incurring legal costs
of £300,000.
The County Court agreed with the landlord at first instance and
held that the landlords were justified in refusing the grant of a
new lease to the tenants. The tenants appealed.
The Court of Appeal considered whether the destruction of
the landlord and tenant relationship was capable of being
connected with the use or management of the holding and
thereby satisfying the requirements of ground s.30(1)(c).
The Court held that there was no requirement for the tenant
to be in breach of an obligation for a landlord to rely on
ground (c). The litigation in question did concern the use and
management of the holding as it related to rights granted
under the lease and, when considering the question whether
the tenant ought not to be granted a new lease, it was right to
consider the tenant’s past behaviour. On that basis the judge
in the County Court had been entitled to come to his judgment
and deny the tenants the right to a renewal tenancy.
Horne & Meredith Properties v Cox and Billingsley [2014]
EWCA Civ 423
April 2014
Strict compliance with break clauses
In August 1997 Sun Life Assurance Society (later Friends Life
Assurance Society Ltd) entered into an agreement for a lease
of premises with A&M Hearing Ltd (later Siemens Hearing
Instruments Ltd).
The lease was subsequently granted on 27 January 1999 for
a term of 25 years from and including 24 August 1998. The
lease included, at clause 19, a tenant’s break clause. This
required that any notice given by the tenant exercising the right
to break “must be expressed to be given under section 24(2)
of the Landlord and Tenant Act 1954”.
In September 2012, a break notice was served on Friends
by solicitors acting for Siemens, indicating an intention to
terminate the lease on 23 August 2013. The notice did not
refer to the notice being given under section 24(2) of the LTA
1954 but did refer to clause 19 and complied with the clause in all other respects.
At first instance the High Court held that, in spite of the
absence of a reference to section 24(2) of the LTA 1954, the
notice was still valid.
On appeal, the Court of Appeal, when considering the validity
of the break, focused on the fact that the tenant’s option to
break was a unilateral contract and that if the offer was to be
accepted, it must be on the exact terms agreed in order for it
to be turned into a binding contract.
The Court of Appeal considered the specific requirements
of clause 19 and held that the word “must” was imperative
and that, in the context of unilateral contracts, there could
not be substantial compliance. Rather, a purported exercise
of an option will be either compliant with both the formal and
substantive provisions of the clause or it will not. If, as in
the instant case, the notice does not comply with all of the
provisions of the relevant clause, that notice is ineffective.
Accordingly, the Court of Appeal held that the notice was
non-compliant with clause 19 and the break had not been
successfully exercised.
Siemens Hearing Instruments Ltd v Friends Life Ltd [2014]
EWCA Civ 382
May 2014
Rent apportionment following exercise of a break right
Marks and Spencer were the tenant of a number of separate
floors of an office block called The Point in Paddington. M&S
exercised its break rights in respect of 4 leases, with each
terminating on 24 January 2012.
To ensure that these breaks were effective, M&S were required
to pay all of the rents due under each lease for the quarter
commencing 25 December 2011 as well as a premium of a
year’s rent. M&S subsequently sought a refund of those parts
of the payments it had made in advance in respect of rent,
service charge, car parking and insurance charges, which
related to a period after the break date.
M&S succeeded at first instance as the Court held that an
apportionment provision should be implied into the lease
because the intention was only for M&S to pay the year’s rent
under each Lease as compensation for terminating early rather
than the year’s rent and an additional two months’ rent. The
landlord appealed.
The Court of Appeal rejected the implied term relating to
apportionment and stated that the starting point for Courts
should be to stay loyal to the wording of the relevant
agreements and that if the agreement was silent, that the
relevant omission was deliberate. Implying terms was only to
be relied upon where it was necessary to give effect to the true
intentions of the parties.
In the instant case the effect of this approach was to reject the
arguments that a tenant should only pay for what it receives
and that the position on a break should be the same as on a
lease ending at the end of the term. The requirement to pay
a substantial premium on the exercise of the break did not
give rise to an implied term that this amount was the totality of
compensation payable to the landlord. The parties would have
known the implications of the clauses as drafted and should
be held to them.
On 11 November 2013, the Supreme Court granted
permission to appeal against the Court of Appeal’s decision.
Marks & Spencer plc (M&S) v BNP Paribas Securities Services
Trust Company (Jersey) Limited [2014] EWCA Civ 603
June 2014
Protected by the corporate veil
In 2006, Sainsbury’s agreed to have a Condek modular car park
system installed at their North Cheam store. Mr Pashorous,
the inventor and designer of the system, represented Condek
throughout the negotiations and signed the documents on
Condek’s behalf. He later supervised the construction and
installation of the car park system at the store.
Sainsbury’s subsequently brought a claim arguing that the car
park had been negligently designed, constructed and installed
and that, as a result of this, it needed to be demolished
and replaced. Sainsbury’s claimed that the works required
to replace the car park would cost over £3m and that they
would lose an estimated £3.6m in lost sales during those
replacement works.
The documents themselves included no warranties or
other forms of security. Compounding this, Condek were
in liquidation and, owing to a late notification of claim, were
uninsured. Sainsbury’s therefore sought to add Mr Pashorous
and Condek’s sub-contractor, NRM, as defendants to the
claim. Sainsbury’s argued that Mr Pashorous had assumed a
duty of care to Sainsbury’s as he was the owner, designer and
sole beneficiary of the agreement.
The Court struck out the claim against NRM on the basis that
there was no contract between NRM and Sainsbury’s. In
respect of the claim against Mr Pashorus, the Court held that
one of the principal benefits of incorporation for inventors was
that it limited their liability. If Sainsbury’s had wanted to pursue
Mr Pashorus personally, it could have insisted upon making
Mr Pashorus a party to the contract or it could have obtained
further security from him. There was no special relationship or
assumption of personal liability by Mr Pashorus.
Sainsbury’s Supermarkets Ltd v Condek Holdings Ltd and
others [2014] EWHC 2016 (TCC)
July 2014
Landlord’s liability for tenant’s nuisance
In February and July 2014, the Supreme Court considered
a number of principles in respect of private nuisance. The
underlying case related to noise nuisance caused by Mr
Coventry’s motocross and speedway track. The Supreme Court held that the track operators were liable in private
nuisance to Ms Lawrence and Mr Shields, who lived near the
stadium in a bungalow that had subsequently burnt down.
In February 2014, the Supreme Court concluded that:
(1) Prescriptive rights to commit what would otherwise be a
noise nuisance were possible.
(2) The defence of a claimant coming to the nuisance would
not generally succeed except, potentially, if the claimant
has changed the use of the land.
(3) A defendant can rely on its activities as constituting part
of the character of the locality, but only to the extent that
those activities do not constitute a nuisance.
(4) Although of relevance as to whether the Court will award
an injunction or compensation, the grant of planning
permission will not deprive a property owner of a right to
object to what would otherwise be a nuisance, without
providing compensation.
The Court duly imposed an injunction limiting the levels of
noise that could be emitted from the stadium and track,
awarded damages to the claimants and required the
respondents to pay a proportion of the claimants’ costs.
On 23 July 2014 the Supreme Court proceeded to consider the
question of whether the landlords of the motocross stadium and
track site were liable for the nuisance of their tenants.
The Court held that the landlord was not liable for his tenant’s
nuisance because although he had done nothing to stop or
discourage the tenant from causing a nuisance, he had not
participated actively or directly in the nuisance. Furthermore,
at the time of the letting to Mr Coventry the nuisance was
not an inevitable or near certain consequence of the letting
as the track could have been used for motocross without a
nuisance arising.
The Court also held that the purpose of the injunction granted
in February was to protect the enjoyment of the bungalow.
Accordingly, the injunction should be suspended until such
time as it had been built and was fit for residential occupation.
Coventry and others v Lawrence and another [2014] UKSC
13 and Coventry and others v Lawrence and another (No. 2)
[2014] UKSC 46.
August 2014
Orders for Sale
The Claimant, Fred Perry (Holdings) pursued a claim against
Mr Genis for damages following his sale of counterfeit goods.
The Claimant duly obtained Judgment for approximately
£133,000 and charging orders over Mr Genis’ matrimonial
home (worth an estimated £1.2m).
When it became clear that Mr Genis would not sell the
property, the Claimant sought an Order for Sale of the
property. In such cases the Court has discretion under
the Trusts of Land and Appointment of Trustees Act 1996
(TOLATA) to decide whether or not the order for sale should
be made and, if it is made, whether particular conditions are
placed upon the sale.
In the instant case Mrs Genis had paid the mortgage
payments since June 2012 and had contributed £100,000
towards the original purchase price. Additionally, Mr Genis’
children (aged 9 and 14 respectively) attended local specialist
schools and it was argued that they may have to move
schools if the property was sold.
Accordingly, the Court was required to consider whether the
Claimant’s commercial interests should take priority over the
family interests under TOLATA and the Family Law Act 1996.
The High Court held that, as the sale of the property was the
only possible source for payment to the Claimant, that the
general policy of giving priority to commercial interests should
be upheld and that the Order for Sale should be made.
Nevertheless, the Court acknowledged the impact upon Mrs
Genis and the children and ordered that the sale be delayed
until 31 July 2015 with interest continuing to accumulate in
the meantime.
Fred Perry (Holdings) Limited v Genis and another (unreported)
1 August 2014 (High Court)
September 2014
Repeat guarantees are void
In this case, the Tindall companies were the tenants of a
portfolio of hotels owned by Adda. The Tindall companies
were part of the Hilton Group and their obligations under the
leases were guaranteed by the Hilton parent company. The
leases were new leases for the purposes of the Landlord and
Tenant (Covenants) Act 1995.
Each of the leases under which Tindall occupied the portfolio
contained two covenants against assignment of the whole of
the premises in question:
The first was a general restriction on assignment which
was a qualified covenant, subject to a number of stringent
conditions under the Landlord and Tenant Act 1927.
The second was a covenant permitting assignment to
associated companies subject to Tindall satisfying two
conditions, (a) that they would provide notice of any
assignment within 10 working days and (b) that they would
“procure that the Guarantor and any other guarantor of the
Tenant shall covenant with the Landlord” as guarantor of
the assignee.
Tindall assigned each of the leases to £1 subsidiary
companies as part of a corporate restructuring without
obtaining Adda’s consent. Tindall did give Adda notice of the
assignments but did not provide the guarantees envisaged by
condition (b). Adda sought a declaration that the assignments
were in breach of covenant.Tindall argued that condition (b) was a repeat guarantee and
that pursuant to the K/S Victoria case, void and should be
struck out. This would mean that the leases effectively gave
them an unrestricted right to assign to any associated company
provided that they gave the notice as per condition (a).
At first instance the High Court held that condition (b) should
be interpreted as imposing an obligation on Tindall to procure
a guarantee from a guarantor of equivalent covenant strength
to the Hilton parent company. Tindall appealed.
The Court of Appeal agreed with Tindall’s submissions that
High Court’s interpretation went too far and that condition (b)
was void. However, the Court went further and held that it
should consider the structure of the contract objectively and
with common sense. Applying this test, Tindall’s reading would
provide a windfall to Tindall. The Court therefore deemed
conditions (a) and (b) to be part of the same proviso and struck
both of them down. Accordingly, the clause was reduced to a
standard qualified covenant against assignment.
Tindall Cobham 1 Ltd and others v Adda Hotels (an unlimited
company) and others [2014] EWCA Civ 1215
October 2014
Landlord’s residential service charge recovery improved
The Court of Appeal has overturned the High Court’s
previous decision in Francis v Phillips in respect of when the
consultation regime laid down in Section 20 of the Landlord
and Tenant Act 1985 will apply to “qualifying works”.
Section 20 limits the landlord’s recovery of the cost of
qualifying works by service charge to £250 per residential
tenant, unless the landlord complies with the prescribed
consultation process or obtains a dispensation from the
Lands Tribunal.
The central issue was therefore what “qualifying works”
meant in this context. The High Court had previously held
that all works in a given service charge year should be
aggregated together without distinguishing between different
sets of works.
The Court of Appeal rejected this approach on the basis that
it would embroil landlords in excessive consultations over
minor service charge expenditure. Furthermore, the resulting
administrative costs would ultimately be borne by the tenants
through the service charge.
Instead, the Court stated that the £250 cap should be
applied to sets of works. When identifying what amounts to
a single set of qualifying works, a common sense approach
should be adopted. Accordingly, relevant factors are likely
to include (i) where the items of work are to be carried out
(whether they are contiguous to or physically far removed
from each other); (ii) whether they are the subject of the
same contract; (iii) whether they are to be done at more or
less the same time; and (iv) whether the items are different in
character from, or have no connection with, each other.
Francis and another v Phillips and another [2014] EWCA Civ 1395
November 2014
Unilateral termination of tenancy by Joint Tenant does
not breach ECHR rights
The Supreme Court has held that a notice to quit served by
one joint tenant which operates to determine a joint tenancy
does not infringe the other joint tenant’s rights under the
European Convention on Human Rights.
The instant case involved a claim by a husband, Mr Sims,
following the service of a notice to quit by his wife to end their
joint tenancy. The tenancy agreement stated that upon service
of a notice to quit served by either of the joint tenants that the
tenancy would be lost. At that point the landlord (the Council)
could elect whether to allow the remaining tenant to stay or to
find them alternative accommodation.
Mr Sims argued that in not allowing him to remain, his rights
pursuant to Article 8 (right to respect for private life) and
Article 1 of the First Protocol to the ECHR (right to peaceful
enjoyment of possessions) were infringed.
The Supreme Court held that the Council was within its
contractual rights to refuse to allow Mr Sims to remain. The
ability to serve a notice to quit benefitted both joint tenants
and the consequences of preventing the Council exercising its
contractual rights would have been either to force a tenant to
stay against their will or to the property being under-occupied.
The Council’s decision-making process had been both lawful
and proportionate. Accordingly, there had been no breach of
Mr Sim’s ECHR rights.
Sims v Dacorum Borough Council [2014] UKSC 63Burges Salmon LLP, One Glass Wharf, Bristol BS2 0ZX Tel: +44 (0) 117 939 2000 Fax: +44 (0) 117 902 4400
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