Discharge of sewage

There has been a series of litigation cases between The Manchester Ship Canal (MSC) and United Utilities Water Ltd (UUW) concerning discharges of sewage by the water company into the canal. The latest case has been referred to the Court of Appeal and judgement was given on 27th June, 2022 ([2022] EWCA Civ 852). To quote Lord Justice Nugee, giving judgement in the appeal court, “The issue raised by this claim was whether MSCC has any private law claim in trespass or nuisance against UU in respect of discharges from outfalls that are not authorised by statute.”

The water company agreed that if there had been discharges into the canal, it would have been in breach of its statutory duty but the only remedy available was enforcement of the regulations by OFWAT and the Environment Agency pursuant to the relevant statutory provisions and not a private legal action by the landowner. The judge at first instance had agreed with the water company. He found that if a discharge contravenes statute, the landowners (in this case MSC) could not bring an action in trespass or nuisance unless there is an allegation of negligence or deliberate wrongdoing in respect of the discharge. MSC appealed.

Following the previous House of Lords case of Marcic v Thames Water Utilities Ltd [2003] UKHL 66 in which it was found that a homeowner could not bring a claim in nuisance when sewage was discharged on to private land, the Court of Appeal upheld the judge’s decision and dismissed the appeal. LJ Nugee said that although the facts of the two cases differed, “Marcic shows that in certain cases the existence of a private law right to sue a sewerage undertaker in tort is inconstistent with the statutory scheme and such a right must be regarded as impliedly ousted.”

Finally, a second issue had arisen in the case. Local authorities, who had previously been sewage undertakers, had entered into agreements permitting that sewers could be removed on notice. Overturning the judge at first instance, the Court of Appeal held that it was legal for local authorities to enter into such agreements.

Could not open due to Covid

We referred in our December 2021 newsletter to, inter alia, the covid related case of London Trocadero (2015) LLP v Picturehouse Cinemas Ltd [2021] EWHC 3103. Cinemas in the London Trocadero claimed to be unable to operate during the pandemic lockdown and failed to attract sufficient customers to meet outgoings once they re-opened due to covid restrictions. In consequence, the cinema operators failed to pay rents amounting to £2.9m claiming there was an implied term in their leases that rental was only payable if and when the cinemas could be operated and/or there had been a total lack of consideration during the periods when the cinemas were forced to close. The case reflects others in which similar arguments had been used to support the tenants’ claims.

The Court of Appeal heard and gave judgement in the case on 27th July together with the case of Bank of New York Mellon (International) Limited v Cine-UK Limited [2021] EWHC 1013 (QB) in which similar arguments arose. In both first instance cases, the judges upheld the landlords’ claim for the unpaid rent but gave leave for the tenants to appeal to the Court of Appeal.

Giving judgement in the higher court, Sir Julian Flaux KC said “In both appeals, the tenants resist the payment of rent for periods when operation of the cinemas was unlawful on two gounds: (1) that the Government restrictions imposed as a consequence of the pandemic caused a failure of basis, relieving them of the obligation to pay rent for those periods and (2) that it was an implied term of the lease that the tenant should be relieved of its obligation to pay rent where the tenant could not lawfully use the premises as a cinema.”

Sir Julian considered the full wording of the leases but in no case could find cause for implied terms to be included thus relieving the tenants of their obligations to pay rent even if prevented from using the premises for their permitted use. He dismissed both appeals.

The judgement will come as a great disappointment to the many tenants who have refused to pay rent for premises they were unable to use due to government covid restrictions There is no hint that the cases will be referred to the Supreme Court.

Bye, bye ground rents?

The Leasehold Reform (Ground Rent) Act 2022 came into force on 30 June 2022. It puts to an end ground rents (other than for one peppercorn) formerly payable on most new long (21 years or more) residential leasehold properties in England and Wales. The governmental Department for Levelling Up, Housing and Communities (‘DLUHC’) has stated “The Act will make home ownership fairer and more transparent for millions of future leaseholders. The reputation of the leasehold system has been damaged by unfair practices that have seen some leaseholders contractually obligated to pay onerous and escalating ground rents, with no clear service in return.” The Act will bring such practices to an end.

Historically, a ‘peppercorn’ ground rent often equated to a rent of nominal or low value. From 30 June, it means what it says – a peppercorn is just that. Further, the Act prevents a landlord from charging a fee for collecting the peppercorn. The DLUHC has stated: “There is no obligation on a landlord to charge or collect a peppercorn rent and we do not envisage that landlords will request their leaseholders pay a peppercorn as a rent in practice.” Whilst it is agreed the peppercorn has no financial value, we at Hatherleigh Training fear that non-payment might give landlords a stick with which to beat its defaulting tenants. Time will tell but a tenant should at least proffer any peppercorn due.

The DLUHC has stated that generally, a lease will be regulated by the Act where:

  • It is granted on or after 30 June 2022
  • It is a long lease (exceeding 21 years) for a single dwelling
  • It was granted for a premium (usually known as the “purchase price”), this also includes where a lease has been varied by a ‘deemed surrender and regrant’ and no premium was required
  • It is not an excepted lease.

The Act, therefore, will not apply to, for instance a business lease or (even though the lease is dated on or after 30 June 2022) to a lease were a legally binding contract was entered into before 30 June.

The Act does not apply to leases entered into before 30 June 2022 and will not affect the payment of ground rents already agreed upon. There is, however, a transitional period which applies to regulated leases of retirement homes. The Act will not come into force for these leases earlier than 1 April 2023.

Electronic Communications Code

The Electronic Communications Code (‘the Code’) confers rights designed to facilitate the installation and maintenance of electronic communication networks. Network providers and providers of infrastructure are empowered to install and maintain electronic communications apparatus (‘ECA’) on, under and over land pursuant to simplified planning procedures. If the land owner fails to enter into an agreement with the network provider or provider of ECA, the courts will impose an agreement.

Many issues pursuant to the Code have come before the courts but the case of Cornerstone Telecommunications Infrastructure Ltd v Ashlock Ltd and another is the first case to come before the Supreme Court. Ashlock and another had a tenancy of the roof of a property known as Windsor House. The tenancy was subject to a lease of part of the roof to Cornerstone. This sub-tenancy was protected by the Landlord and Tenant Act, 1954. Cornerstone, which had already installed apparatus on the site pursuant to its tenancy, asked the courts to impose terms of an agreement under the Code. The Upper Tribunal found it had no jurisdiction as Cornerstone was already in occupation of the land under the ’54 Act. The Court of Appeal dismissed Cornerstone’s appeal and the case went before the Supreme Court.

The main issue before the Court was whether the word ‘occupier’ under the Code includes an operator presently on the site as a result of having installed and operated ECA there. The Supreme Court held in judgement published on 22 June that Cornerstone could only ask the courts to modify existing rights in respect of the site but this does not prevent an operator from obtaining additional code rights.

Wilberforce Chambers comment “The judgment is a significant boost for operators and will make it much easier for them to secure the agreements required for the roll out of 5G services.”

Safety within buildings?

The dreadful events at Grenfell Tower leading to the death of 72 persons were now over five years ago. A public inquiry was established to examine the circumstances leading up to and surrounding the fire. A list of issues was divided into two phases – Phase 1 examined the factual issues and led to a report and recommendations issued on 30 October, 2019. Phase 2, delayed by the Covid pandemic, will look at wider issues including building regulations and enforcement.

Some of the Phase 1 recommendations have been addressed by the government including amended fire regulations and the Building Safety Act, 2022 (having received royal assent on 28 April, 2022) which “contains provisions intended to secure the safety of people in or about buildings and to improve the standard of buildings (s1 of the Act). The Act is lengthy and complex but will, it is hoped, go some way to preventing another Grenfell Tower. Issues, which relate primarily to England, will be overseen and regulated by a ‘Regulator’ whose duties include facilitating building safety for higher-risk buildings and keeping safety and standards of buildings under review. A higher-risk building is at least 18 metres in height or has at least 7 stories and contains 2 or more residential units (s65 of the Act). The Act is to be enacted over a period of time.

Since the Grenfell fire, one of the issues which has grabbed the headlines is the cost of replacing cladding on many residential buildings (the cladding at Grenfell Tower was a major factor in the speedy spread of the fire in the building). Thousands of leasehold owners in buildings across the country have found that the substantial cost of remedial works are included in their service charge and, leaving aside the huge sums themselves, have made the sale of their homes impossible. The Act enables those with an interest in a building to take action against a manufacturer and protects leaseholders from paying costs due to be paid others for unsafe cladding. Landlords must exhaust other options for payment before looking to their tenants (whose contributions will be capped). A public fund has been established to assist with funding of required remedial works. The limitation period for commencement of legal action has been extended primarily to catch original developers who have used unsafe cladding materials. Time will tell if the Act will promote safer buildings.

‘Not to be unreasonably withheld’

The old chestnut of ‘such consent not to be unreasonably withheld’ has raised its head in the reported case of Davies-Gilbert v Coacher & Ors [2022] EWHC 969 (Ch).

The owner of the Gilbert Estate within the South Downs National Park (‘the Estate’) had the benefit of a restrictive covenant over land, being part of the Estate, upon which the defendants wished to build two detached residential dwellings. The covenant prohibited construction of an “erection building or wall whatsoever without such previous written licence as aforesaid such licence not to be unreaonably withheld.” The claimant refused consent to the proposed development on the basis that “In short, if the development were to proceed: (a) it would have a detrimentl impact on the amenity value of the Estate and (b) it could threaten the future use and commercial value of the neighbouring land”.

The judge found that the land with the benefit of the restrictive covenant did not equate to the whole of the Estate. Therefore, she found that the claimant had taken into account irrelevant factors affecting the Estate as opposed to just the benefiting land when it stated that the proposed development would “have a detrimental impact on the amenity value of the Estate”. She therefore rejected this reason as being ‘unreasonable’. That left the second reason which, the judge held, she could consider as a freestanding reason even though the first reason had been rejected.

The judge considered the facts relating to the second reason for refusal in detail including the evidence of both witnesses of fact and experts. She concluded that in giving his reason, the claimant had considered only factors relating to the ‘neighbouring land’ having the benefit of the covenant. She concluded that “the Claimant followed a reasonable decision-making process in relation to the second issue and reached a reasonable outcome when he refused permission on that basis.”

The case had taken up six days of the court’s time and was, in consequence, an expensive exercise. Falcon Chambers warn that “Practitioners will need to be careful going forwards, from the moment of instruction by clients, to scrutinise not only a covenantee’s headline ‘reasons’ for refusing consent but also, so far as may be possible, any other underlying ‘considerations’ which may have influenced the decision.”

Business Rates: here we go again!

We have written a lot in the past about the government’s promised review of business rates (see for instance, our newsletter of November, 2020). After general consultation, the govenment eventually issued its final report re England in October, 2021. Business rates are devolved to Scotland, Wales and Northern Ireland’s own government bodies.

In respect of England, the government states its proposals will

  1. Support the high street and reduce the burden of business rates by “providing a tax cut worth about £1.7 billion for eleigible Retail, Hospitality and Leisure properties, for 2022 to 2023”.
  2. Cut the burden of business rates for all businesses by “freezing the multiplier for 2022 to 2023”.
  3. Introduce a new relief to support investment in property improvements.
  4. Introduce new measures to support green investment and the decarbonisation of non-domestic buildings.
  5. Make the system fairer by moving the three-yearly revaluations from 2023.
  6. Invest in the business rates systems to ensure fundamental change by providing £0.5 billion for the Valuation Office Agency (VOA) as part of its spending review.
  7. Provide stability ahead of the 2023 revaluation by “extending Transitional Relief and the Supporting Small Business Scheme for 2022 to 2023”.
  8. Consider the arguments “for and against an Online Sales Tax which, if introduced, would raise revenue to fund business rate reductions. A consultation will be published on an Online Sales Tax shortly”.

However, despite its promise for an extensive review, the government states that “business rates will remain an essential component of the overall basket of business taxes”. The British Property Federation, representing the real estate sector, is disappointed: “the reforms announced to date will not on their own be sufficient to fix the broken business rates system. We still need fundamental reform.” In particular, it calls for a resetting of the multiplier to a fairer rate, abolishing downwards transitioning from the 2023 revaluation and provision of additional relief on empty properties.

Dilapidations : in or out of scope of VAT?

One year ago in our February 2021 newsletter, we reported on HMRC’s briefing paper numbered 12 of 2020 which indicated that VAT was payable upon damages paid for dilapidations. The decision, which originally stated that payments would be retrospective, led to considerable discontent and debate in the property industry. Later HMRC, having taken counsel’s advice, stated that payments would not be retrospective but would be payable from some future date. Originally that date would be 1st February 2021 although HMRC stated that would be confirmed in due course. Confirmation was awaited although many firms practising in the dilapidations arena began to ask tenants to pay for dilapidations plus VAT with the VAT element being paid into a separate account to be repaid if HMRC were to change the payment date.

However, when HMRC issued its updated paper on VAT ‘Supply and Consideration’ on 7th February, 2022, practitioners were surprised to find that HMRC had had second thoughts. In its paper VATSC05910, the Revenue stated “Whether a payment is for a VAT supply depends on whether anything is being done in return for a consideration. Where a party agrees to do something in return for a fee there is a supply. How that fee is described does not affect whether there is a supply for VAT. What matters is whether something is done and if there is a direct link between what is done and the payment received, and reciprocity between the supplier and the customer”.

It continued saying that a “potentially difficult area are dilapidation payments which occur in the land and property sector. These vary in the way they are provided for but broadly they exist to ensure landlords are not out of pocket if buildings are not returned in the agreed condition at the end of the lease. Our policy continues to be that these are normally outside the scope of VAT”. It referred to its guidance paper entitled ‘Land and Property (VAT Notice 742)’ which confirmed that “A dilapidation payment represents a claim for damages by the landlord against the tenant’s ‘want of repair’. The payment involved is not the consideration for a supply for VAT purposes and is outside the scope to VAT.”

So, to confirm, dilapidation payments are outside the scope of VAT.

Restrictive or not?

So, what will this new year bring the property world? One issue highlighted by the Court of Appeal in December 2021 is the old legal chestnut of restrictive covenants.

The UK Law Commission had recommended in its report ‘Making Land Work: Easements, Covenants and Profits a Prendre’, published in June 2011, that the complex rules surrounding restrictive covenants should not apply to new covenants (introducing instead ‘legal obligations’). These were aimed at modernizing and simplifying the law. In 2017, the government announced it “intends to simplify the current restrictive covenant regime by implementing the Law Commission’s recommendations for reform and will publish a draft Bill for consultation as announced in the Queen’s Speech.” The draft Law of Property Bill, however, appears to have disappeared from the government’s present list of bills.

Meanwhile, the courts continue with the old regime (which will relate to existing restrictive covenants even if the new law is introduced). A covenant in a 1922 conveyance relating to, inter alia, the well-known rugby ground tenanted by Bath Rugby Club “by which the original purchaser, for itself and its successors, covenanted that nothing should be thereafter “erected placed, built or done” on the land “which may be or grow to be a nuisance, annoyance or disturbance or otherwise prejudicially affect the adjoining premises or the neighbourhood”. The club wished to replace its present buildings on the land with a larger stadium incorporating retail and commercial outlets together with parking. In so doing, the club recognised that the development might breach the covenant. It therefore applied to the Land Tribunal pursuant to s84(2) of the Law of Property Act, 1925 to wholly or partially discharge or modify the restriction claiming there was now no one who could claim the benefit of the restriction. The application was opposed by local residents and the judge at first instance upheld their objections. The club appealed.

The Court of Appeal found no difficulty in deciding that the restriction ran with the land incorporating the club’s premises. The question was, however, whether the benefit of the covenant was enforceable by the opposing residents and whether the beneficial land could be sufficiently identified. Giving judgement, Lord Justice Nugee found it was asking too much of the words in the covenant to identify at the “level of conceptual certainty” the beneficial lands. The appeal succeeded.

And what does 2022 hold?

The pandemic and rent arrears in particular have dominated our newsletters throughout 2021. But what can we expect from the courts for 2022?

One case not covid related and upon which we reported in February 2019 and 2020 was that of Fearn and others v The Board of Trustees of the Tate Gallery. Flat owners in a building neighbouring Tate Modern on London’s riverside sought an injunction requiring the Tate to prevent members of the public from viewing their properties from the Tate’s viewing platform. The judge at first instance held there were measures they, the owners, could take to protect themselves from ‘an inwards intrustion by others’ for instance by installing net curtains or blinds. Appalled, the owners appealed to the Court of Appeal.

The Court of Appeal refused the appeal stating that the law of nuisance did not include ‘overlooking’ and should the law do so in future, it would require legislation. The owners turned to the Supreme Court. The case was heard this month but judgement has been reserved. It is expected in 2022.

Returning to covid related cases, London Trocadero (2015) LLP v Picturehouse Cinemas Ltd [2021] EWHC 3103 related to cinemas in the London Trocadero which were unable to operate during the pandemic lockdown and failed to attract sufficient customers to meet outgoings once they re-opened due to covid restrictions. In consequence, the cinema operators failed to pay rents amounting to £2.9m claiming there was an implied term in their leases that rental was only payable if and when the cinemas could be operated and/or there had been a total lack of consideration during the periods when the cinemas were forced to close. The judge upheld the landlord’s claim for unpaid rent. The case reflects others in which similar arguments have been used to support the tenants’ claims.

This case is due to be heard by the Court of Appeal in February and again, we look forward to reading the judgements in 2022. Watch this space!

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