Archive for News

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!

Pandemic brings new laws and Code

We have looked in the past (see newsletter January, 2021) at some of the restrictions placed on landlords and mortgagees preventing, temporarily, the commencement of eviction proceedings. On 9 November, 2021 the Government issued a press release setting out new laws and a Code of Practice to resolve remaining Covid-19 commercial rent debts.

Commercial tenants are presently protected from eviction until 25 March, 2022 thus providing time to negotiate commercial rent debts caused by the pandemic. Those negotiations are now underpinned by the new Code of Practice which states tenants unable to pay their rental debts (including service charges and insurance payments) in full as a result of premises having been closed or having had business restricted during the pandemic from 21 March, 2020 (‘the ring-fenced period’) should negotiate with their landlord in the expectation that the landlord will waive some or all of the arrears where they are able to do so. To aid in establishing the ring-fenced period, Annex A of the Code sets out timelines for differing sectors although parties may find their own circumstances differ. Annex B to the Code lists some factors to be taken into account by the parties e.g. business performance since March 2020, payments to directors and shareholders, other debts, government grants etc.

Additionally, from 25 March 2022 new laws are to be introduced (a Bill is presently in its committee stage in the House of Commons) which will establish a legally-binding arbitration process for some, but not all, commercial landlords and tenants who have not already reached an agreement pursuant to the Code. The Bill covers such businesses forced to close for ring-fenced periods such as pubs, gyms and restaurants in England and Wales. It contains a landlord’s moratorium on some other remedies (e.g. CRAR) and insolvency arrangements whilst the arbitration is in progress.

Parties using the Code and, when introduced, the arbitration service should exhibit transparency and collaboration, a unified approach to third parties and to act reasonably and responsibly in order to reach a swift agreement. The aim is to preserve viable businesses but not at the expense of the solvency of the landlord. The Code is strongly backed by the Scottish Government. We can only wait to see how successful negotiations and arbitrations will be throughout the UK.

Retained or not retained?

S132 of the Land Registration Act, 2002 states that ‘land’ includes, inter alia, mines and minerals whether or not they are held with the surface of the land. ‘Mines and minerals’ are defined as including ‘any strata or seam of minerals or substances in or under any land, and powers of working and getting any such minerals or substances’.

The trustees of the Williams-Wynn 1987 Settlement (the claimants) owned and over time, sold land contained within some 40 land registered titles to the Environment Agency and the Forestry Commission (now vested in the National Assembly for Wales). The purchased land was used for forestry purposes and was managed by the defendant.

The claimants say it was the surface only of the land which was disposed of but what was beneath the surface was retained by them. However, for some years, the defendants had been extracting mudstone (the prevailing bed-rock in Mid-Wales) from below the surface of the land to be used as foundations for inter alia the forestry estate roadways. The claimants sought a declaration of rights, damages for trespass and for breach of their property rights pursuant to the Human Rights Act, 1998 (Wynne-Finch & ors v Natural Resources Body for Wales [2020] EWHC 1924 (Ch)).

The 40 titles had been categorized into 4 groups: those with express reservations, those pursuant to the 1864 Crown grant, other contractual enclosure agreements or under the Arwysti Enclosure Act, 1816. The judge at first instance found that in none of the categories does the claimants’ retained title extend to the mudstone but should this conclusion be wrong, the defendants had established adverse possession to the mudstone. The claimants appealed.

The Court of Appeal gave judgement on 12th October, 2021 ([2021] EWCA Civ 1473). The judges all dismissed the appeal holding for their expressed reasoning (given by Lord Justice Henderson) that none of the conveyancing reservations (which should always be read with care and deciphered in context) included mudstone. In consequence, the judges did not need to consider the law of adverse possession about which LJ Henderson said “The issues of law which would arise, if we needed to decide them, are both complex and difficult.”

Environment Agency’s statutory duties under the Human Rights Act 1998

There has been a considerable amount of press and media coverage concerning a small boy, Mathew, described by a judge as “a vulnerable child who is particularly badly affected by hydrogen sulphide (H2S) emissions from WQLS” (Walleyes Quarry Landfill Site) close to which the child lived. An operational licence had been issued by The Environment Agency (“EA”). However, the emissions from the quarry were described as placing “the local community in crisis and living in unbearable conditions” and for Mathew they were, it was claimed “preventing recovery and lung development” at a critical time of his life. Unless the EA acted, the emissions “would dramatically shorten his life expectancy”.

Court proceedings were issued on behalf of Mathew not against the quarry operators but against the EA. Quoting the judge, Mr Justice Fordham “In legal terms, the case is about whether the EA is discharging (a) its statutory duty under section 6 of the Human Rights Act 1998 (“the HRA”) to protect Mathew’s Article 2 right to life and his Article 8 right to respect for private and family life and (b) its public law duties at common law to act reasonably and take reasonable steps to acquant itself with relevant information”. (The Queen (on the application of Mathew Richards) v The Environment Agency with Walleyes Quarry Limited as an interested third party [2021] EWHC 2501 (Admin).) The court was asked to find if the EA are in breach of the HRA and whether the EA can and must act so it is no longer in breach.

The judge found that both Article 2 and Article 8 were triggered by the emissions from the quarry, However, the EA had failed to comply with its statutory duties and had failed to implement “the advice of Public Health England as expressed in the Fourth PHE Risk Assessment (published 5 August 2020)”. It must design and apply such measures as are necessary to reduce off-site odours and continue to apply such measures in order to reduce emissions to an acceptable health level in the long term. Permission to appeal was reduced.

The judgement is long and thorough addressing the relevant case law, the regulatory framework and Mathew’s claim. It is interesting, too, for the application of ‘hot tubbing’ of the expert witnesses i.e. the questioning of the experts by the judge following 10 questions agreed by the parties. The judge said the process gave him “real assistance” in understanding the issues enabling him to crystallise the topics that really mattered. Although long, the judgement is well worth reading.

And is this a ‘service’?

It is almost 3 years since we reported, in September 2018, on the much anticipated RICS Professional Statement re Service Charges in Commercial Property. Whilst directed to commercial and not residential property, one would have hoped that this important Professional Statement, which sets out mandatory requirements which must be followed by those administering service charges, would impact upon the residential property world. Sadly, it appears that in many cases, such hope is misplaced despite the fact that residential property has some statutory guidance and requirements.

In the Weekend FT paper for the w/e commencing 31 July, 2021, it is reported that “errors in service charges leave residents fuming”. It goes further: “Many believe mistakes are at best the result of ineptitude. Others wonder if sometimes there might be a simpler explanation: fraud.” This is a serious charge.

The FT investigation took evidence from residents across the country and revealed widespread errors in how residential service charges are calculated and passed on. “Errors are often exposed and rectified only after residents lobby for information, comb through receipts and chase refunds.” However, it should not be left to the residents, rarely qualified to investigate the charges made, to calculate the service charges. Sadly, leaving aside the anguish caused to overcharged residents, the legal routes for tackling unjust charges made by property management professionals, are complicated, particularly in the case of replacing the managing agents through a legal ‘right to manage’ and are always expensive.

So, in the absence of any consequences for those making the errors, residents are left alone to investigate the charges claimed. Residents in one luxury central London development say they have identified more than £2M of potential service charge errors over a five-year period. It is reported that the landlords recognized that “historic service charge errors by the estate’s managing agents were identified” and new managing agents are to conduct a full review. But it should not be this way. Covered by the RICS Professional Statement or not, the professionals calculating the service charges should always have an eye on the standards set by their professional body.

If you wish to hear more about service charges, why not contact Hatherleigh Training?

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