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CVAs – the drama continues

In June, 2018 we reported many landlords were feeling they were being forced to shoulder their tenants’ loss when those tenants sought store closures and substantial rental reductions by way of Company Voluntary Arrangements (‘CVAs’). The British Property Federation called upon the Government to undertake a much needed review of the CVA procedure which, the BPF claimed, ‘risks undermining the UK’s global reputation and deterring much needed investment into our town and city centres’. To date, nothing has happened in Parliamentary terms (Parliament having only one topic on its members’ minds: Brexit) but the courts have been asked to intervene (Discovery (Northampton) Ltd and others v Debenhams Retail Ltd and others [2019] EWHC 2441).

Giving judgement this month, Mr Justice Norris was asked to consider, inter alia, whether a CVA cannot reduce rent payable under leases because it is unfairly prejudicial to do so and whether landlords are treated less favourably than other unsecured creditors without proper justification. He held ‘the fact that future rent is reduced under the CVA does not inevitably transgress the requirements of common justice and basic fairness‘.

Further, the judge was satisfied that the reduced rents were at or above market rents although there ‘would have been “unfairness” if landlords were expected to take reductions in rent to below the market value of the premises concerned’. He was not swayed by the argument that by making beneficial use of premises let to it, the tenant company must pay the full contractual rent referable to the particular period of occupation and could not unilaterally reduce the contractual rent. He declared a CVA can vary existing obligations but not create new ones. A right of forfeiture within an existing lease is, however, a proprietary right that cannot be altered by a CVA. Of course, landlords are unlikely presently to exercise a right to forfeit a lease of retail premises as the likelihood of re-letting is often remote.

Mr Just Norris recognises, in his judgement, that the applicatns are likely to appeal – so, watch this space!

Ignore or study the plan?

A lease will almost invariably have a plan annexed to it with what purports to be the demise marked, usually in red, upon it.  The plan is often inaccurate and may simply be a copy of a plan annexed to an earlier lease.  In which case, when does one take note of what the plan attempts to say?

The lease will usually refer to the plan either stating that it is ‘for identification purposes only’ in which case, generally speaking, the plans will not add to or amend the wording of the lease and the wording will prevail.  Alternatively, the lease may state that the demised premises are ‘further or better described on the plans annexed hereto’ in which case the plans and the information contained upon them are crucial in working out what is or is not included in the demise.

In two recently reported cases (concerning service charges) the Tribunal had to determine whether or not meter cupboards were within the demise (Buttermere Court Freehold Ltd v Goldstrom and Blair Court Freehold Ltd v Parissis [2019] UKUT 225 LC).  On appeal, the Upper Tribunal said “The meter cupboards are outside each flat and adjacent to the internal front door of each; the tenant holds the key.  They contain, obviously, electricity and gas meters.  They are not mentioned in the leases, but they are within the red edging on the lease plans.  On that basis, the respondents argued that they are within the demise.” The Lower Tribunal had not agreed saying the plan may not be accurate (although there appears no reasoning behind this comment), that wires in the cupboard served other parts of the building and were maintained by the landlord; that the cupboards were never intended to be habitable space and that if part of the demise, the landlord would potentially have difficulty in taking enforcement action against the tenant if the meters fell into disrepair.  The tenants appealed.

The appeal was allowed.  The Upper Tribunal said its task was to determine the demise from what a lease, including any plans, stated.  Only if a lease is ambiguous is it permissible to refer to other evidence.  Whilst, in this case, the lease did not refer to the cupboards (any more than it referred to other parts of the demise e.g. the kitchen or bedroom), they are unambiguously within the red edging on the plan:  “It is difficult to see why there is any need to go further.

If you wish to hear more about determining the demise, why not speak to Hatherleigh Training?

New deal?

We have a new Prime Minister and a new Cabinet but the main aim remains the same – to implement the people’s vote to leave the EU.  In his first speech outside No. 10 Downing Street, having been asked by the Queen to form a government, Boris Johnson emphasized

“We will do a new deal, a better deal that will maximise the opportunities of Brexit while allowing us to develop a new and exciting partnership with the rest of Europe based on free trade and mutual support.”

He looked forward to a “post-Brexit future” and considered opportunities open to the people of Britain in battery technology, free ports, the bio-science sector, in satellite and earth observation systems.  He wants safer streets, better education, ‘fantastic’ new road and rail infrastructure and full fibre broadband across Britain.

But what does he want for the property industry?  Where in his speech does he consider the issues close the the hearts of people in that sector?  Perhaps the hint (but no more) comes when he speaks of his role as Prime Minister of the whole of the United Kingdom

“and that means uniting our country, answering at last the plea of the forgotten people and the left-behind towns by physically and literally renewing the ties that bind us together.”

Does he have in mind the empty retail units in our high streets or perhaps the problem of houses left empty and presently under consideration by Cornwall Council?

What remains left undone by previous administrations?  A look down the list of issues raised, considered and reported upon by the Law Commission gives us some matters to ponder such as rights to light, termination of tenancies, a land registration system fit for the 21st century, a right for tenants to manage their own properties and the knotty question of leasehold enfranchisement.  Where will the new government’s priority lie after 31st October, 2019?  Time will tell.

An easement or what?

Land in Churston, Devon was sold to a golf club.  The retained land (owned by trustees) was used for agricultural use.  The golf club covenanted in clause 2 of the conveyance as follows:

“The Purchaser hereby covenants with the Trustees that the Purchaser and all those deriving title under it will maintain and forever hereafter keep in good repair at its own expense substantial and sufficient stockproof boundary fences walls or hedges along all such parts of the land hereby conveyed as are marked T inwards on the plan annexed hereto”.

As between the original parties to the conveyance, the Trustees could enforce the above clause against the Purchaser.  But what happens if the gold club sells its interest?  Is the new purchaser also bound by the clause?  A judge at first instance said ‘yes’ because clause 2 was not a mere covenant – it was in fact an easement.  In any event, he held that the burden of clause 2 would pass to the new owner of the golf club pursuant to s79 of the Law of Property Act, 1925.  On appeal, the High Court said the juudge at first instance was wrong re s79 due to the earlier decision of the House of Lords in Rhone v Stephens [1994] 2 AC 310 (which held only negative covenants could bind successors in title).  Therefore, if a simple covenant, the answer would be ‘no’ (a problem which the Court of Appeal said would be evident to any conveyancing solicitor and could be overcome by a chain of indemnity covenants).  However, the High Court agreed with the judge at first instance and held that clause 2 was not a simple covenant but was in fact an easement.  As such it would bind the new purchaser.

The golf club under its new ownership appealed to the Court of Appeal (Churston Golf Club Limited v Richard Haddock [2019] EWCA Civ 544).  Was clause 2 a simple positive covenant to fence or was it an easement for the benefit of the retained land?  And if the latter, could a fencing easement be created by express grant as opposed to custom or prescription?

The Court of Appeal held clause 2 was nothing more than a covenant to fence – it did not amount to an easement.  In those circumstances, the court said it was unnecessary to consider whether it is possible to create a fencing easement by express grant.  The question remains open.

‘No-fault’ termination of residential tenancies to end

For years, private landlords and housing associations have been enabled to let residential property on assured shorthold tenancies (‘AST’).  The property must be the tenants’ main accommodation and the landlord himself cannot live there.  The rent cannot be more that £100,000 per annum or less that £250 (£1,000 in London).  It is now the most common form of residential tenancy in England.

Granted for a fixed term of six months or more, an AST will continue after the fixed term expires and until the landlord serves notice upon the tenant giving at least two months’ notice in writing thereby bringing the tenancy to an end (pursuant to s21 of the Housing Act, 1988).  The landlord need give no reason for ending the tenancy and it is this aspect of the AST that has proven so popular with private landlords.  However,  the ability of landlords to ‘uproot’ their tenants ‘with little notice, and often little justification’ is considered wrong by Prime Minister Theresa May.  The government therefore wishes to abolish ‘no-fault’ evictions in England.  (The National Assembly for Wales proposes to introduce changes to residential lettings by its Renting Homes (Wales) Act, 2016.  In Scotland, the Housing (Scotland) Act 1988 applies and the Housing Act 1988 was never implemented in Northern Ireland.)

The government is to launch its consultation shortly re its proposals to remove the landlords’ ability to use ‘no-fault’  evictions in England.  In its Press Release dated 15 April, 2019, the Ministry of Housing, Communities & Local Government assures landlords they will have ‘effective means of getting their property back when they genuinely need to do so’.  Thus, says the Ministry, property owners will be able to regain their property should they wish to sell it or move into it.

Despite these assurances, there must be many a private landlord now seriously considering whether they wish to continue to let their property in the future.

The government says it will ‘collaborate with and listen to tenants, landlords and others in the private rented sector’ and develop a new deal for renting residential property.  We await the outcome of the consultation with interest.

Go directly to Jail!

Solicitors and expert witnesses beware!  You face jail sentences if in contempt of court by making or causing to be made, whether deliberately or recklessly, a false statement in a document verified by a statement of truth without an honest belief in its truth (see Civil Procedure Rules (CPR) 32(14) as underlined by the Court of Appeal (Liverpool Victoria Insurance Co. Ltd v Zafar [2019] EWCA Civ 392).

Dr Zafar produced an expert report on the instructions of solicitor, Mr Khan.  He reported he had examined a Mr Iqbal, who had suffered neck injuries due to a road accident, but had fully recovered.  Mr Iqbal complained to Mr Khan that he was still suffering neck pains.  Mr Khan contacted Dr Zafar who produced a second report reporting the on-going pain without any re-examination.  Both reports contained a statement of truth in accordance with the CPR.  The insurers for the defendant driver issued proceedings against Dr Zafar and Mr Khan alleging contempt of court.

In examining previous case law, the judge at first instance found:

“Those who make false claims should expect to go to prison.  Solicitors and expert witnesses who act dishonestly in the evidence they give to the court, whether in support of such claims or otherwise, must expect a similar outcome.  Mr Khan and Dr Zafar, you must understand that the proper functioning of the court system depended on your honesty.  Your conduct in this case amounts to a fundamental betrayal of the trust placed in you by the court.”

He sentenced the solicitor, Mr Khan, to an immediate 15 months’ of imprisonment and Dr Zafar to a 6 month sentence suspended for a period of two years, blaming the solicitor ‘for the whole sorry affair’.  The claimants appealed Dr Zafar’s sentence.  The judge gave leave stating there was no judicial guidance on the appropriate sentence to be passed on an expert witness in such circumstances.  The Court of Appeal gave guidance on the factors a judge should take into consideration but stated “We say at once, however, that the deliberate or reckless making of a false statement in a document verified by a statement of truth will usually be so inherently serious that nothing other than an order for committal to prison will be sufficient.”

Some relief for property owners

Unless another party is liable for the business rates (for instance, a tenant), owners of business premises are liable even if their property stands empty.  Business rate reliefs are available in limited circumstances, including for the period of three months from the time the property becomes unoccupied.  After that, rates are payable in full.

A recent Court of Appeal case will, therefore, give rise to joy amongst property owners and will be viewed with dismay by local councils (Rossendale Borough Council v Hurstwood Properties (A) Ltd and others [2019] EWCA Civ 364).  To quote Lord Justice David Richards: “These appeals concern two schemes designed to avoid the payment of National Non-Domestic Rates (NDR) on properties which in most instances were unoccupied.  Both schemes involved the grant of leases of the properties to special purpose vehicle companies (SPVs) without assets or liabilities which, as part of the scheme in question, were then placed in voluntary liquidation or were allowed to be struck off the register of companies as dormant companies and thus dissolved.”

The property owners (the defendants) maintained that in fact the SPVs were ‘the owners’ of the properties for the purposes of liability for NDR during the term of the leases.  The local authorities agreed unless the SPVs could be disregarded as a matter of law.  The court said “The appeals raise two issues.  First is it arguable that the doctrine of piercing the corporate veil is applicable to the SPVs?  Second, is it arguable that the leases fall to be disregarded by the application of the principles established by the decisions in W.T. Ramsay Ltd v Inland Revenue Commissions [1982] AC 300 (Ramsey) and later cases?”  The judge at first instance had answered ‘yes’ in relation to the first issue and ‘no’ in relation to the second.  The defendants appealed the first decision and local authorities, the second.

The Court of Appeal held the answer to both issues is ‘no’: “it is not open to the courts to pierce the corporate veil of the SPVs”.  Further, there is no question of the SPVs being shams (the judge so held at first instance and leave to appeal was refused) and hence the relevant SPV alone is liable for the NDR.

Will the decision be appealed?  One can only wait and see.

Legal headlines

Two court judgements have recently hit the legal headlines in the property world.  We reported on the first in our November, 2018 newsletter.  The second concerns an application for an injunction to prevent visitors to a viewing platform at the Tate looking into neighbouring flats.

Re Canary Wharf (BP4) TI Ltd and others v European Medicines Agency [2019] EWHC335 (Ch)

The judge found that, contrary to its submission, the fact that

(a) the EMA could not, after Brexit, legally take an interest in property outside the EU nor

(b) continue to hold a property interest in the UK after Brexit was not relevant.

It had acted within the meaning and effect of the European law when it took its lease.  The UK exiting the EU made no material difference.  Thus, the EMA lease was not frustrated by Brexit.

Re Fearn and others v The Board of Trustees of the Tate Gallery [2019] EWHC 246 (Ch)

Re a potential breach of the residents’ human rights – neither The Tate nor its viewing platform is or is exercising functions of a public nature.  Hence, the human right legislation is irrelevant.

Turning to ‘nuisance’ – the judge considered the case law and concluded that nuisance is capable, in an appropriate case, of protecting the privacy of a home as against another landowner.  However, in looking at whether this was ‘an appropriate case’, he concluded it was not.  The flat owners had chosen to buy flats which “are impressive, and no doubt there are great advantages to be enjoyed in such extensive glassed views, but that in effect comes at a price in terms of privacy”.  Owners could take measures to protect their privacy (e.g. to install net curtains or blinds or ‘privacy film’) but that would reduce their view.  However, said the judge, the claimants were not seeking a legal right to a view – which “is not a right known to the law”.  He continued “They are saying they should not have to obstruct their view to protect themselves from an inwards intrusion by others.”  That is a different point but is the intrusion a nuisance?  The law of nuisance, said the judge, requires ‘give and take’ and looking at the overall balance which has to be achieved, the availability and reasonableness of the measures which the flat owners could take supports his views that the intrusion is not nuisance in this case.

Greater access to the courts

Before civil proceedings in the High Court are commenced or once commenced, in the period before trial, it is possible to make an urgent interim application to a judge.  It might be made, for instance, to protect property from sale (known as a ‘freezing order’), or to obtain or prevent disclosure of confidential information.

The procedure is conducted pursuant to Part 23 and Part 25 of the Civil Procedure Rules and their Practice Directions 23A and 25A.  If really urgent, the court may allow an application to be made without notice being given to another party and in some circumstances, even heard over the telephone.

With thanks to Wilberforce Chambers for drawing this to our attention, the Insolvency and Companies Court has, as with other branches of the High Court, introduced with immediate effect an Interim Applications Court.  Applications will be heard on Thursdays, Fridays and every other Monday and the list will be run in the same way as the High Court Judges’ Interim Applications Court.  The latter remains unaffected by the introduction of the new interim applications court.

It is intended that the new list will be used to hear applications for, for instance, an injunction to restrain the presentation of a petition to wind up a company or to appoint a provisional liquidator.  The courts have made it clear the “Applications with a time estimate of more than two hours (including pre-reading time, judgement and consequentials) are generally not suitable for the ICC Interim Applications Court.”

Such applications are with the purpose of enabling greater access to the courts and it is hoped this aim will be achieved.

The law has changed

As we reported in October, the property world awaited the Supreme Court decision in the case of S Franses Ltd v The Cavendish Hotel (UKSC 2017/0151) in which the meaning and effect of the word ‘intends’ within ground (f) of s30(1) of the Landlord and Tenant Act, 1954 was to be considered.  The case turned on the landlord’s intention to conduct works sufficient to defeat the tenant’s application for a new tenancy.

The law was long thought to be settled.  The question to be asked of the judge was ‘would the landlord require possession of the demised property in order to do the substantial works it has said it would do’?  Why it was doing the works was irrelevant.  In this case, the landlord gave an undertaking to the court to the effect that it would conduct substantial works but admitted it was doing so to defeat the tenant’s application.  Would the admission be relevant?

Giving judgement, Lord Sumption said

“This appeal does not, it seems to me, turn on the landlord’s motive or purpose, nor on the objective reasonableness of its proposals.  It turns on the nature or quality of the intention that ground (f) requires.”

However, he then continued to say

“The acid test is whether the landlord would intend to do the same works if the tenant left voluntarily.”

We cannot help but think that ‘the acid test’ does turn on the landlord’s motive or purpose but who are we to question Lord Sumption’s view?

In future, therefore, the question to be asked of any landlord opposing a tenant’s application for a new tenancy is: ‘would you intend to do the same works if the tenant were to leave the property voluntarily and abandon its application?”  The law has changed.

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