We are pleased to bring you the sixth edition of Druces’ property e-bulletin.

Aimed at a property professional/adviser readership, our intention is to bring you a regular collection of interesting recent property and planning focused news items. The topics covered will be broad ranging, with each article a bite-sized consideration of some of the sector’s most topical issues.

We would welcome feedback on the content covered below and any comments you may have on the future focus of this e-bulletin.

Nicholas Brent, partner and Head of Druces’ Property Team.

 1.       Make sure you have the funds in place before contracting to buy property

Any good lawyer will tell you that, when purchasing property, it is absolutely vital that you have the required funds in place before contracts are exchanged. In a case on point, a property investor paid heavily for failing to follow that fundamental rule.

The freeholder of a commercial property had contracted to sell it to a company for £1.2 million. The latter subsequently assigned its rights under the contract to another company (the purchaser). The freeholder agreed to extend the time for completion, but the sale was not finalised on the date that had been agreed.

The freeholder responded by serving a notice on the purchaser, requiring completion within 10 working days. There was no dispute that time was of the essence, but that deadline also passed without completion being achieved due to difficulties the purchaser had encountered in raising the necessary funds. In those circumstances, the freeholder purported to rescind the contract and found an alternative buyer.

That sale, however, was delayed after the purchaser registered unilateral notices at the Land Registry on the basis that it had a continuing contractual right to buy the property. The freeholder launched proceedings with a view to vacating those notices, but the purchaser sought an order requiring specific performance of the contract.

In ruling on the dispute, the High Court found that the freeholder was in repudiatory breach of the contract in that it had failed to provide vacant possession of the property by an agreed date. However, the purchaser had not accepted that repudiation as having terminated the contract, which it had wished to keep alive.

By failing to complete the sale by the deadline given in the completion notice, the purchaser was in repudiatory breach of the contract. The freeholder was entitled to accept that breach and to rescind the contract. In those circumstances, the purchaser’s claim for specific performance did not arise and the unilateral notices stood to be vacated. The Court heard further argument as to whether the purchaser’s £120,000 deposit should be declared forfeit.

 2.      Ground Rent may often seem trifling – but it really must be paid!

Ground rents payable by long leaseholders often amount to apparently trifling sums, but allowing them to fall into arrears can have severe consequences. The point was made by a Court of Appeal case in which a tenant came perilously close to having his lease forfeited for failing to pay £2 a year in rent to his landlord.

The 900-year lease was granted in 1948, when £2 was worth very much more than it is today. By the time the tenant acquired the lease in 1997, however, inflation had had its inevitable impact and he neglected to pay the rent. In those circumstances, the freeholder served a notice in respect of unpaid rent and, on the very next day, purported to forfeit the lease by peaceably re-entering the property. After the tenant launched proceedings, however, both the First-tier and Upper Tribunals found that the lease had not been validly forfeited.

In ruling on the landlord’s challenge to that conclusion, the Court found that the notice was valid notwithstanding that it was not precisely in the form prescribed by the Landlord and Tenant (Notice of Rent) (England) Regulations 2004, as amended. Parliament was unlikely to have intended that such a minor discrepancy would have the effect of invalidating a notice.

In dismissing the appeal, however, the Court noted that the lease specified that it could only be forfeited if rent remained unpaid for two years after it had fallen due. By operation of Section 166 of the Commonhold and Leasehold Reform Act 2002, the rent did not become due until the date on which the notice was served. The purported forfeiture was thus premature.

3.      Office Block Advertising Displays – Court of Appeal guides planners

Imposing illuminated advertisements adorning the sides of office blocks are an ever-increasing feature of modern cityscapes – but they can pose a particular challenge for planners. The Court of Appeal gave guidance on the issue in ruling that LED signs displayed within a prominent building must be removed.

By virtue of the Town and Country Planning (Control of Advertisements) (England) Regulations 2007, the signs were deemed to have the local authority’s consent because they were located inside the building. However, they were visible over a long distance and the council issued a discontinuance notice on the basis that they caused substantial injury to the amenity of the locality.

In later rejecting the building owner’s challenge to that decision, a planning inspector found that the extremely prominent moving displays were overly large, dominant and incongruous. They could be seen from three conservation areas and from the settings of a number of listed buildings. Local residents had also complained of being disturbed by their flashing effect. The inspector’s decision was subsequently upheld by a judge.

In dismissing the company’s challenge to the latter ruling, the Court rejected its plea that the discontinuance notice was draconian in its effect. Although it terminated the deemed consent, it did not prevent the company from seeking the council’s express consent for alternative advertising displays on the site. The inspector’s factual conclusions and exercise of her planning judgment were unassailable.

4.      Tenancy or Licence? Security company wins possession order

The distinction drawn between tenancies and licences to occupy premises is crucial but not always easy to discern. A High Court case on point concerned an agreement by which a security company allowed a man to occupy a vacant office block in order to protect it from the threat of trespassers or vandals.

The block was owned by a local authority which had contracted with the company to provide so-called ‘guardians’ to occupy it on a temporary basis. When the council sought vacant possession with a view to redevelopment, the company asked the relevant guardian to move out. He declined to do so and the company launched proceedings to recover possession.

A judge found that the man had a right to exclusive possession of a single habitable room and various storerooms within the block. However, in granting a possession order against him, the judge considered that his agreement with the company took effect as a licence, rather than an assured shorthold tenancy.

In rejecting the man’s challenge to that ruling, the Court noted that the block was not designed as residential accommodation and that the agreement stated in terms that it did not confer a tenancy. He was one of several guardians who occupied the block and, differing from the judge, the Court found that he did not enjoy exclusive possession of any part of the premises.

Observing that it was not confined to interpreting the agreement in isolation, the Court ruled that the background – including the nature of the property guardian scheme and the terms of the company’s contract with the council – were relevant. The agreement was not a sham and the entire commercial purpose of the scheme depended upon guardians enjoying limited rights as licensees. The possession order had been stayed pending the Court’s decision, but would now come into effect.

Camelot Guardian Management Limited v Khoo. Case Number: QB/2018/0168

5.      Controversial basement plans trigger Leasehold Covenants test case

Some obligations that are placed on tenants by their leases can be waived by their landlords, but others are expressed as absolute commitments. A guideline Court of Appeal ruling in the context of controversial basement works in a residential block showed how crucial that distinction can be.

The case concerned a block of nine flats that were held on 125-year leases. The landlord was a company that was owned by the tenants. The leases were subject to identical covenants. One of them, amongst other things, forbade tenants from cutting, maiming or injuring any wall within, or enclosing, their flats.

The covenant was couched in absolute terms and did not contemplate that consent might be given by the landlord to do what it forbade. One of the tenants wished to carry out improvement works that would include the removal of about seven metres of load-bearing wall at basement level. It was agreed that such works would amount to a breach of the covenant. The works would also have extended beyond the current limits of the flat.

Another tenant, who objected to the works, launched proceedings against the landlord. He argued that the covenant amounted to an absolute prohibition on cutting through the basement wall and that the landlord had no right to permit its breach. On the contrary, the freeholder was obliged by the terms of the lease to enforce the covenant in the interests of other tenants. Those arguments, however, failed to persuade a judge, who found that the landlord was entitled to give consent to the basement works.

In upholding the tenant’s challenge to that decision, the Court noted that the case was of wide importance because such covenants are commonplace in residential leases. Notwithstanding the absolute terms of the covenant, the landlord had power, as between itself and the leaseholder who wished to carry out the works, to license its breach. However, the grant of such a licence, or a decision to waive the requirements of the covenant, would breach obligations the landlord owed to other tenants under the lease. The Court granted a declaration to that effect.

6.     Telecommunications equipment forced on reluctant property owner

The new and highly controversial Electronic Communications Code – which enables telecommunications equipment to be effectively forced on reluctant landowners – has come under analysis for what is believed to be the first time in a tribunal case.

Two mobile phone operators argued that they urgently needed to install equipment on the roof of a residential block, but faced opposition from the building’s owner, a local authority. The urgency arose because an existing telecommunications site, about 140 metres away on the roof of another building, was under threat. The owner of that building had sought planning permission to redevelop the site and had indicated that it would require the equipment’s removal.

In the circumstances, the operators had applied under the Code, which was created pursuant to the Digital Economy Act 2017, for an agreement to be imposed on the council, requiring it to allow the equipment’s installation. Pending determination of that application, the operators sought an interim order enabling the installation to take place forthwith.

The council argued that it was seriously prejudicial to impose an agreement on a landowner on terms which it would not willingly have accepted. Residents of the block would also inevitably suffer noise, disturbance and inconvenience whilst the equipment was being installed.

In ruling on the matter, the Upper Tribunal (UT) agreed that landowners who are deprived of their right to do as they wish with their own property, and who are made to accept a price that is lower than they would like, can be said to have sustained an infringement of their property rights which is prejudicial.

However, it observed that the whole premise of the Code is that there is a need, in the public interest, to impose agreements on unwilling property owners in return for consideration which Parliament has deemed to be adequate. The operators said that they would need about eight months to arrange a seamless transition of their equipment between the two buildings and that any delay would place mobile phone coverage in a densely populated area in jeopardy.

In granting the interim order sought, the UT found that the operators had established a good arguable case that it was necessary and that any relatively slight prejudice suffered by the council could, in principle, be compensated in money. Whether a permanent agreement would be imposed and, if so, the amount of rent that the operators would be required to pay the council, remained to be decided. The UT directed that the interim order should only come into effect if planning consent is granted for the redevelopment of the other building.

7.    High Court rejects odour objections to poultry farm planning permission

Countryside smells are recognised by planners to be a fact of rural life. In a case on point, the High Court upheld planning permission granted for an intensive poultry farm despite a campaigner’s concerns about unpleasant odours.

A farmer wished to construct two poultry sheds, with a capacity for 82,500 birds, on his land. Birds would be fattened for slaughter in cycles lasting about 35 days before the sheds were cleaned out and a new flock brought in. Planning permission was refused by the local authority, but that decision was subsequently reversed after the farmer appealed to a central government planning inspector.

The inspector found that odours coming from the site would be quite intense whilst the sheds were being cleaned at the end of each cycle. However, such smells would not persist for long and the farmer had carried out a robust assessment of potential odour impacts. Independent consultants had concluded that odour concentrations would be within acceptable limits.

The farmer was bound by conditions attached to an environmental permit, issued by the Environment Agency, and the inspector found that there would be no significant harm to the living conditions of neighbours arising from the proposal in respect of odour or noise. In challenging the planning permission, however, the campaigner argued that poultry farms had proliferated in the relevant area and that objectors’ concerns were not being taken seriously.

In ruling on the matter, the Court agreed that the inspector was mistaken when he said that the doors to one of the sheds would face away from neighbours’ homes. However, that error had made no material difference to the outcome. In dismissing the woman’s complaints, the Court found that the inspector gave adequate reasons for his decision and had properly understood technical evidence concerning odour concentrations. The woman lived 10 miles away from the farm and in any event lacked the legal standing required to challenge the inspector’s decision.

8.    High Court sanctions housing development in strategic green gap

Local authorities that do not have a five-year supply of available housing land can have developments that they consider undesirable foisted upon them. Exactly that happened in one case concerning controversial plans to build 29 new homes in a green gap between two established settlements.

After the relevant council refused consent for the scheme, the developer successfully appealed to a central government planning inspector, who granted permission despite acknowledging that the development was contrary to a local planning policy that was designed to maintain the rural character of the strategic gap.

In his decision, the inspector observed that the issue as to whether the council had in hand a five-year deliverable supply of housing land was marginal. He applied a tilted balance in favour of the development and found that it was sustainable within the meaning of the National Planning Policy Framework.

In dismissing the council’s challenge to that decision, the High Court noted that the inspector had also found that the harm to the local landscape would be limited and that loss of high-quality farmland would be modest. Certain of the council’s complaints about his decision amounted to excessive legalism and were misconceived. In applying the tilted balance, he was entitled to find that the disadvantages of the development would be outweighed by the benefits.

9.    Are supermarket ATMs separately rateable? Court of Appeal says no

If a retailer permits a bank to install an ATM on part of its premises, does the plot of land concerned form a separate entity for the purposes of non-domestic rates? In a case with substantial financial and other implications, the Court of Appeal has authoritatively answered that question in the negative.

The case concerned many thousands of ATMs that remain the property of banks but are placed either within, or on exterior walls of, supermarkets and smaller shops. Various local authority valuation officers took the view that sites on which the ATMs stood were rateable in their own right.

That meant that banks were liable to pay rates on those sites and, in most cases, no corresponding reduction was granted in the rateable value of shops at which ATMs were located. The matter came before the Court in circumstances where a number of appeals against Valuation Officers’ decisions were pursued before the Valuation Tribunal for England, but only some were successful.

In upholding appeals brought by retailers, banks and a company that specialises in installing ATMs in small shops, the Court noted the established principle that, where a person in possession of premises has given another possession of part of those premises, he nevertheless remains in rateable possession of that part, save where the other person has exclusive possession.

ATMs were viewed by retailers as part of their overall offer to customers. The retailers had, in the case of both internal and external ATMs, retained sufficient control of the relevant sites, in contractual, physical and functional terms, to be regarded as being in paramount occupation of the same. In those circumstances, the sites on which ATMs stood were not separately rateable.

10.    Rights to Light – concerned home owner stymies hotel development

Rights to daylight really do matter to homeowners and, if you feel that yours is under threat, you should consult a solicitor right away. The point was powerfully made by a case in which the High Court heeded an objector’s concerns and overturned planning permission for a multi-million-pound hotel development.

Developers had been granted planning consent by the local authority to demolish an outdated office block to make way for the new hotel. Residents of a neighbouring street supported redevelopment of the site in principle, but said that the proposal would lead to unacceptable loss of light to their homes.

The council had followed the advice of one of its planning officers, who had said that loss of light arising from developments was not uncommon in heavily built-up areas. Only some of the homes on the relevant street would be affected and guidelines concerning loss of daylight had to be applied flexibly and sensibly.

After one resident launched a judicial review challenge, however, the Court found that flaws in the officer’s advice had resulted in councillors being significantly misled. They had not been informed that both the total amount of daylight penetrating a building and the distribution of that light were important factors. Councillors were not therefore in a position to form a judgment on the impact of the development on daylight distribution within affected homes, nor were they aware that they needed to do so. The planning permission was quashed.

11.    Bar owner pays heavy price for defying Planning Enforcement Notice

Planning conditions may be inconvenient, but those who persist in breaching them can expect to be prosecuted and severely punished. In one case, a bar owner and his company received fines of £146,000 after flagrantly defying planning enforcement notices.

The man had obtained planning consent to convert the premises into a public house. That was, however, subject to conditions and he was required, amongst other things, to install a new shop frontage and effective sound and vibration proofing before the bar opened. He failed to meet those conditions and was served with enforcement notices by the local authority.

His defiance continued, however, and he was fined £90,000 after pleading guilty to breaching the notices. He also received a £225,000 confiscation order and was ordered to pay prosecution costs of £21,080. The company which ran the bar, of which he was the sole director, was fined £56,000.

The facts of the case emerged as the man challenged the amount of the fines before the Court of Appeal. In rejecting his complaints, however, the Court described the breaches of planning control as flagrant. He was a wealthy man who drove a Rolls-Royce and owned at least one yacht. In the circumstances, neither his fine nor that imposed on his company were excessive.

12.    Property developer pays for trampling on neighbouring Charity’s rights

Private property rights matter and those who trample on them usually pay a heavy price. That was certainly so in one case in which a high-handed and opportunistic property developer constructed affordable housing in knowing breach of restrictive covenants that protected the rights of a charity that owned adjoining land.

The developer built nine two-storey houses and four bungalows after obtaining planning consent for the project. The 13 affordable units were, in planning terms, a quid pro quo that enabled the developer to engage in a much bigger and more valuable housing project on other land in the area.

Before the units were built, the developer was well aware that the site was subject to restrictive covenants that forbade the building of any structures upon it and confined its use to that of an open space for vehicle parking. The covenants, contained in a 1972 conveyance, benefited a charity which planned to build a hospice for sick children on its neighbouring land.

However, it was only after the units were complete that the developer applied to the Upper Tribunal (UT) under Section 84 of the Law of Property Act 1925 to set aside or modify the covenants. In its decision, the UT was critical of the developer’s conduct, but modified the covenants so that the units would not have to be demolished.

Some of the new homes – which had since been sold to a social housing provider – were already tenanted and the impact of demolition on residents weighed heavily with the UT. The developer was ordered to pay the charity £150,000 in compensation, that sum representing the cost of remedial planting and landscaping required to screen the garden of the hospice from being overlooked.

In allowing the charity’s appeal against the UT’s ruling, the Court of Appeal stressed the public interest in honouring contracts and ensuring that private property rights are upheld and protected. The developer had, with its eyes open and completely at its own risk, acted in an unlawful and precipitate manner by building in breach of the restrictive covenants. It was therefore appropriate that the developer should bear the risk that it may have wasted its resources in building the units.

The Court’s ruling meant that the covenants remained in force and that, in order to save the units from demolition, the developer would have to endeavour to negotiate a release from the charity. The developer had previously given an indemnity to the social housing provider that currently owned the site against any losses that might arise if the attempt to set aside or modify the covenants failed.

13.    When is the Community Infrastructure Levy chargeable? High Court

The community infrastructure levy (CIL) is a charge that local authorities can impose on new developments as a means of funding local infrastructure. The sums involved can be very substantial and a High Court ruling in a guideline case will help to dispel doubts over the exact circumstances in which it is payable.

The owner of a commercial building had obtained planning permission to convert it into six flats. At that point, the local authority did not require a CIL payment. The planning permission was implemented and remained extant, but the works had not been completed. The building remained vacant and uninhabitable.

The owner later decided that it would be more economic to create three flats, rather than six, and applied for and was granted planning permission for that development. On granting that consent, however, the local authority demanded a CIL payment of £547,419. A formal liability notice was subsequently issued in that amount.

In challenging the bill by way of judicial review, the owner argued that it was exempt from having to pay CIL by operation of Regulation 40(7)(ii) of the Community Infrastructure Levy Regulations 2010. Although the works permitted by the six-flat permission had not been completed, it had been validly implemented and the residential use of the building had thus been established.

In dismissing the owner’s arguments, however, the Court noted that, at the time the three-flat permission was granted, the building was a mere shell, without any of the facilities required to make it fit for habitation. The fact that no actual residential use had by then occurred was the very reason why the owner had to apply for planning consent in respect of the three-flat development, rather than relying on permitted development rights. That development could not have been carried through lawfully without further planning permission and the local authority was thus entitled to charge the CIL.

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This e-bulletin was first published on 24 January 2019

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