12 May, 2017
Below is a round up of what we think are some interesting headline issues arising out of recent cases (2016/17) and pending new legislation/regulations affecting the real estate sector:
- If you let property (residential or commercial) then 1 April 2018 should be in your diary and an action plan in place now to assess if any works need to be carried out by you, as landlord, to ensure your properties meet or exceed the new minimum energy efficiency rating (the minimum rating being E) to be imposed under new regulations. Failure to secure, at the very least, the minimum E rating will mean that on or after 1 April 2018 you will not be able to grant a new lease of your property (including lease renewals) unless an exemption applies without risking a fine being imposed by the local authority. Leases in existence now and which are not due to end until after 1 April 2018 are not affected – for now. However, residential property which is already let cannot go beyond 1 April 2020 without the minimum rating having been achieved; 1 April 2023 is the date for commercial property already let under existing leases. Energy Performance Certificates (EPCs) which state the energy rating are valid for 10 years and should be checked to see if they will need to be renewed soon and the likelihood of improvement works being required. Also, any current energy rating may change during the 10 year period of validity of an EPC if, for example, alterations have been carried out which have adversely affected the building’s energy efficiency. There is some debate amongst lawyers and other professionals about perceived shortcomings of these new regulations, but in any event we would suggest professional advice be sought at an early stage to avoid last minute issues arising next year which then hold up letting deals.
- Side letters to leases are often used by landlords as a convenient way to grant concessions to tenants which relax a tenant’s lease obligations without including the concessions within the body of the lease itself. This is because concessions may be granted to a tenant for only a short period and/or are intended to benefit only a particular tenant. Examples of concessions are monthly rents rather than quarterly rents or a plate glass insurance waiver. Side letters usually state that concessions are to fall away when they expire or earlier if there is a breach of a condition subject to which the concessions are granted. So, at the relevant time, the concessions are supposed to end leaving the lease (which itself makes no mention of the concessions) to continue as if the concessions had never existed. Not any more. As a result of a case decided in March 2017, it is now possible for a landlord to be stuck with a concession granted to a tenant for longer than the landlord had bargained for. The case concerned a rent concession granted by way of a side letter to a tenant who had breached the conditions contained in the side letter. On the face of it, and in accordance with the express terms of the side letter, the landlord was entitled to end the concession with retrospective effect. According to the court, on the facts of that case the consequence of a tenant’s breach (termination of the concession with retrospective effect) was draconian and disproportionate to the breach itself. On that basis the court decided that the termination provisions in the side letter were unenforceable (as a penalty) and that the landlord was therefore stuck with the concession. Careful drafting of side letters is now more important than ever to try to ensure that this issue does not affect you.
- Knotweed (aka Fallopia japonica), if present on your land, must be controlled before it encroaches on another’s land otherwise you risk being sued by a neighbour for damages. Those damages may be for the cost of surveys and treatment programmes carried out by the neighbours, any diminution in the value of their properties after treatment has been carried out and general damages for loss of amenity and interference with quiet enjoyment. Landowners need to know their sites.
- If you are planning to develop a site, make sure you obtain a right to use and reproduce all plans, drawings etc for which planning consent is to be or has been granted. Those plans will be protected by the Copyright Act 1988 and the owner of the copyright may take action against you if it has not consented to its plans being used or copied by you. If such a claim is successful, it may result in damages and/or an injunction preventing use of the plans and could mean a fresh planning permission must be sought.
- Recent cases have highlighted the importance of complying with statutory duties on sales of land whether the sales are effected by local authorities or charity trustees. In the case of a local authority, s123 of the Local Government Act 1972 requires the authority to obtain best value on sale. The same duty applies to charity trustees under the Charities Act 2011. These duties potentially offer to disgruntled third parties an opportunity to challenge a sale. If successful, a challenge may result in a transaction being unravelled (although some protection is afforded to buyers under both pieces of legislation) and/or, in the case of charity trustees, regulatory action being taken against the trustees.
- A recent case has demonstrated that a transaction clause intended to limit a trustee’s liability to the extent of the trust’s net assets must specifically include reference to any pre-contract representations made by or on behalf of a trustee during the transaction negotiations. If it does not do so then a trustee’s personal liability may not be limited at all in relation to a claim for misrepresentation. Unfortunately that was the result for the trustees concerned in a case decided in February 2017 regarding a claim for misrepresentation worth £1m+ in damages.
- One way to try to get rid of restrictive covenants affecting your land is to make an application to the Lands Chamber of the Upper Tribunal under s84 of the Law of Property Act 1925 to discharge or modify those covenants if (a) they are now obsolete or (b) they impede a reasonable use of the land or (c) all of the people who can enforce the covenants agree by their actions that the covenants are no longer relevant or (d) no injury would be caused by the covenants being either discharged or modified. The procedural hurdles can be cumbersome since formal notice must be served on all those who would potentially be affected by the discharge/modification of the covenant and, if the application is successful, compensation may have to be paid. As you would expect, such cases are decided on their particular facts. Recent examples follow. In March 2017, an applicant failed to persuade the court that it should discharge a covenant affecting its holiday bungalow because the court’s view was that if it did discharge it then that would be “the thin end of the wedge” leading to a change in the character of the surrounding development. The covenant in question (which reflected a planning condition to which the bungalow was also subject) prevented occupation of the bungalow during certain weeks of the year and other than as holiday accommodation. Conversely, in 2013 it was decided that a covenant preventing land from being used other than for agricultural use/riding school/livery purposes could be discharged allowing the land to be developed for 4 new houses. The reason given for that decision was that the court had not been persuaded by the objector (who was itself a housebuilder) that the covenant secured any “practical benefits of substantial value or advantage” to the objector.
- Group company reorganisations, for example, might at one point have included leases being assigned from tenant to guarantor, but not any more. In 2016, the court found that such an assignment of mainly post 1 January 1996 leases was void. The decision has been widely criticised, but remains law. An appeal due to take place in May 2017, which may well have reversed the decision, will not now be heard as the parties settled out of court. Where such assignments have already taken place, we would recommend that the situation be reviewed and regularised going forward.