At Your Service

The much anticipated RICS Professional Statement re Service Charges in Commercial Property was launched this month and the management of service charges will never be the same again!  Acknowledging the very positive impact the service charge code has had on the property industry over the 22 years since its inception, it takes matters forward by introducing mandatory requirements which must be followed by those administering service charges.  It comes into effect in April 2019.

Whilst this new Professional Statement cannot and does not over-ride the terms of any lease of commercial property, it dictates how a lease should be interpreted and how the charges are calculated and managed.  Its aim is to reduce the number of disputes which commonly arise in the service charge arena and to improve standards in the administration and management of the charges made.  It underlines the timely issuing of budgets, with an explanatory commentary, and year end accounts as required by most commercial leases which have in the past been woefully ignored.

Aimed at those managing and administering the charges, it does, for instance, require practitioners acting for tenants in dispute with their landlords over the charges made, to advise their clients that any retention of monies made from the charge allegedly due should reflect only the actual sum in dispute.  Landlords and their managing agents should, on the other hand, make sure all expenditure charged accurately reflects the meaning and effect of the lease terms and the expenditure made.  Service charge monies (including any reserve and sinking funds) must be held in discrete bank accounts and any interest earned should be credited to the appropriate service charge account.

Turning to the accounts, all costs should be transparent and management fees should be a fixed price with no hidden mark-ups.  Apportionment between the tenants of the sums expended should be demonstrably fair and reasonable reflecting the availability, benefit and use of the srvices provided – draftsmen of leases will need to take note and it will be interesting to see how this part of the Professional Statement is interpreted.  Those certifying accounts should recognise they have a duty of care to both owners and occupiers.  In fact, anyone with the commercial property field should be aware of this important Professional Statement.

Prepare or Fail

With thanks to Wilberforce Chambers, which brought this case to our attention (Jonathan Seitler QC and Emer Murphy acting for the successful party), Clutterbuck & Paton v Cleghorn [2018] EWHC 2125 (Ch) is a stark reminder to parties that failure to fully prepare one’s case opens the door to failure.

The case concerned the redevelopment of a dilapidated residential property being part of a claim revolving around a property joint venture agreement.  The claimant alleged, inter alia, that wrongful delay, caused by another partner to the scheme (who had since died), led to the redeveloped property coming to the market later than originally envisaged.  It was further alleged that the delay and a lack of quality in workmanship had led to the property selling for a sum less than that at which it would have sold if the property had come to the market at an earlier date and in the physical state required by the agreement.

The judge said “Where a claimant’s case depends on an allegedly actionable wrong that is alleged to have caused a loss the nexus between alleged cause and alleged effect must be pleaded in an intelligible form.  Where loss is alleged to have been caused by allegedly actionable delay, it will usually be necessary for a claimant to plead the period of delay relied on, plead why it is alleged to be actionable as against the defendant, what the result of the delay was and what loss is alleged to have been caused thereby.”  However, the necessary evidence to support the claim, the quality of work and the assertion of loss had not been called.  The claimant had sought, at an earlier directions hearing, that the trial be split between liability and quantum, an application which had been refused.  No appeal had been lodged and the trial judge would not hear of the matter being raised again – in any event: “Making such an Order would not address the absence of expert evidence relating to the quality of the work carried out to the Property, which is relevant to liability in respect of the Defects Claim.”

The claimant finally attempted to rely on general comments made about quality of work and finishes and about valuation in estate agents’ reports before the court.   The judge held the key point was that there was no evidence directed at valuation or quality of work and he could not “simply pull a figure from the air as to what price might have been achieved”.  Hence the claim failed.

The moral of this story is that a party must fully prepare its case before trial or risk failure.

The Knotty Question of Knotweed

Japanese knotweed is a fast-growing, invasive plant which, if left uncontrolled, can cause extensive damage to the built and unbuilt environment.  It is amongst the plants listed in Part II of Schedule 9 of the Wildlife and Countryside Act, 1981 (‘the schedule’) to which s14 of that Act applies i.e. a person shall be guilty of an offence if he or she plants or causes to grow wild any species listed in the schedule.  It is not a crime to have the plant within your own grounds but you will be liable if it spreads into the wild or (pursuant to the civil law) on to a neighbour’s land.  Further, disposal of the plant material may cause difficulties as it is classified as ‘controlled waste’ under the Environmental Protection Act, 1990.  It can, therefore, only be transported and disposed of at a licenced site by a licenced contractor.

The question of how damages are assessed when the plant is in danger of spreading onto a neighbour’s land came recently before the courts (Network Rail Infrastructure v Williams & Waistell [2018] EWCA (Civ) 1514).  The plant had grown on Network Rail’s land for some 50 years or more.  When it spread to within 7 metres of the neighbouring borders, the owners issued proceedings seeking an injunction against Network Rail requiring that it abate the nuisance.  They claimed mortgagees refused to lend on properties within 7 metres of the plant and therefore the value of their properties was reduced.  The Recorder at first instance refused a mandatory injunction but considered damages in lieu.  He awarded treatment and insurance costs plus £10,000 to one claimant and £10,500 to the other in respect of residual diminution in the market value of their respective properties.  However, the Court of Appeal said “The Recorder’s conclusion that the presence of knotweed on NR’s land within seven metres of the claimants’ properties, because it diminished the market value of the claimants’ respective properties, because of lender caution in such situations, was wrong in principle.”  Nevertheless, the plant and its rhizomes “can fairly be described, in the sense of the decided cases, as a “natural hazard”.  They affect the owner’s ability fully to use and enjoy the land.  They are a classic example of an interference with the amenity value of the land.”

The appeal court did not resubmit the question of damages to the lower court feeling “the cost of that exercise would be out of all proportion to the amount of damages in issue”.  In consequence, the decision of the Recorder was upheld but for different reasons to those which he gave.

Call for urgent review of CVAs

In our newsletter of March 2016 we highlighted the rental reduction voted on by creditors of British Home Stores upon that Company’s Voluntary Arrangement (‘CVA’).  Since then, several retailers and restaurateurs have used similar tactics (including the closure of some stores or restaurants) in an attempt to save their business.  As we previously stated, a proposed reduction in rent or store closure does not have to receive unanimous creditor support – the arrangement will be binding so long as it receives 75% in debt value amongst those creditors attending the CVA meeting.  However, many landlords, whilst having sympathy with retailers who are facing genuine financial difficulties, are feeling that they are being forced to shoulder the loss suffered by their tenants.

Until now, property owners appear to have obtained little public sympathy but the imminent closure of many House of Fraser stores has highlighted the fact that much of the nation’s retail portfolio is owned by large pension funds.  Store closure and a drop in rental value will have a negative effect upon these funds.

Speaking for property owners across the country, the British Property Federation (‘BPF’) has this month called upon the Government to conduct an urgent review of the CVA procedure.  To quote from the BPF’s website “We believe the process is now being mus-used, and this risks undermining the UK’s global reputation and deterring much-needed investment into our town and city centres, at a time when it is arguably more important than ever that the UK demonstrates it is open for business.”

Whilst the BPR supports the proper use of CVAs, it says the full impact on property owners “and the pensioners’ savings they invest”, upon tax payers, local communities, businesses and economies should be appreciated.  Melanie Leech, Chief Executive of the BPF says “Urgent action is required and we are calling on government today to undertake a review, so that we can restore the CVA process to its oriuginal purpose.”

If you wish to hear more about CVAs and tenant insolvency as a whole, why not contact Hatherleigh Training?

Communication Apparatus Can Go Anywhere!

The Communications Act, 2003 introduced a regulatory framework for the communications sector.  It also established the regulatory Office of Communications (‘OFCOM’).  Annexed to it was a code (‘the Code’) enabling communication operators (‘Operators’) to install and maintain apparatus on public land and to apply to the courts for an order to install and maintain equipment on private land if the Operator was unable to reach agreement with the private landowner.  Over the years, the Code became outdated and insufficient for the needs of Operators.  Hence, in order to improve communication coverage, capability and capacity, as demanded by the Operators, communities and the general public as a whole, the Code had to be updated.

A new Code has now, through the Digital Economy Act, 2017, been introduced and the powers given to Operators, substantially increased.  It came into operation on 28 December 2017 and applies to any agreement between Operators and landowners entered into after that date.  To accompany the new Code, OFCOM produced a Code of Practice, a set of proposed standard terms to be used in the agreements and, finally, a number of templates for notices, some of which are compulsory under the legislation.

The powers included in any agreement are now extensive.  In addition to entering any land, public or private, to install equipment, maintain, alter and repair it, the Operators may connect to the landowner’s power supply, obstruct access to the land and lop back trees and vegetation interfering with apparatus.  They may also assign or share their equipment with other Operators and conduct street works.  The Code relates, too, to the termination of agreements (landowners can only terminate for specified reasons including the Operator’s non-payment of the agreement fee, or for the purposes of redevelopment), the terms to be included (including the consideration paid) and makes provision for dispute resolution.  Powers are enforced by the courts.

Longer notice periods before an agreement can be terminated, the assignment provisions and the basis of the consideration to be paid by Operators (which has substantially decreased the payments made), have already given rise to negative comment by landowners and their representatives.  It will be interesting to see whether these mutterings lead to disputes.  Watch this space.

‘Wrotham Park’ damages not for breach of contract

Almost a year ago, in May 2017, we looked at the Court of Appeal judgement in Morris-Garner v One Stop (Support) and anticipated a future Supreme Court judgement.  This was given on 18th April ([2018] UKSC 20), having been heard last October.  Lord Reed gave judgement, with whom the majority of the court agreed.  The Supreme Court found the trial judge and the Court of Appeal had adopted the wrong approach in enabling Wrotham Park damages to be applied to a breach of contract and has remitted the case to the judge at first instance to measure the financial loss suffered by the claimant.

In breach of a restrictive covenant in a buy-out agreement, the defendants in the case set up a business in competition with the company in which they had previously had shares.  Despite having threatened seeking an injunction, the claimant delayed considerably in bringing its proceedings and, at the end of the day, merely sought damages for breach of contract.  The Supreme Court has held that if an injunction is denied, Wrotham Park damages may be awarded in lieu of an injunction.  However, if seeking damages for breach of a contact, the claimant must prove loss and the loss must be calcualted.

Damages in lieu of an injunction are awarded under Lord Cairns’  Act.  Lord Reed held “One possible method of quantifying damages under this head is on the basis of the economic value of the right which the court has declined to enforce, and which it has consequently rendered worthless.  Such a valuation can be arrived at by reference to the amount which the claimant might reasonably have demanded as a quid pro quo for the relaxation of the obligation in question.  The rationale is that, since the withholding of specific relief has the same practical effect as requiring the claimant to permit the infringement of his rights, his loss can be measured by reference to the economic value of such permission.”  He then continued “That is not, however, the only approach to assessing damages under Lord Cairns’ Act.  It is for the court to judge what method of quantification, in the circumstances of the case before it, will give a fair equivalent for what is lost by the refusal of the injunction.”

So, the claimant must make a choice on breach of contract – either act quickly and seek an injunction or delay and risk refusal of an injunction (leading to damages in lieu) or seek calculated damages.

25 year plan

We have looked at energy efficiency (December 2007, March 2015 and October 2017), protected species (February 2017), planning (August 2016), flooding (August and December 2013) and the birds and the bees (October 2008).  The amount of legislation attaching to the environment becomes more and more extensive but clearly has not ended yet.

The leaving of the EU has prompted the Government to take a long term view of the UK’s natural environment and has published a 25 Year Environment Plan.  In her Foreword, the Prime Minister confirms “When the United Kingdom leaves the European Union, control of important areas of environmental policy will return to these shores.  We will use this opportunity to strengthen and enhance the protections our countryside, rivers, coastline and wildlife habitats enjoy, and develop new methods of agricultural and fisheries support which put the environment first.”

In a summary of the Government’s goals and targets, the Department for the Environment, Food and Rural Affairs (DEFRA), looks at how it will produce clean air and water, assist plants and wildlife to thrive, reduce the risks from environmental hazards, use resources more sustainably and efficiently, conserve and enhance the beauty of the UK’s natural environment, mitigate and adapt climate change, minimise waste, manage exposure to chemicals and enhance biosecurity.

No one would doubt the need for such aims but those currently suffering from, for instanc, coastal erosion in such places as the Isle of Wight, Norfolk and Yorkshire, from tree cutting council programmes in such places as Sheffield and reduced rubbish collections by many local authorities, may doubt the effectiveness of such plans.

Actions not words might be the phrase upon which to concentrate but perhaps the proposals re money-back schemes on handing in plastic bottles might be, at the very least, indicative of things to come.  The Prime Minister has promised “By implementing the measures in this ambitious plan, ours can become the first generation to leave [the] environment in a better state than we found it and pass on to the next generation a natural environment protected and enhanced for the future.”  Only time will tell.

Within the Boundary?

Boundary disputes between neighbours, whether the lands are registered or not, are common and can become contentious.  Costs escalate as each party instructs its lawyers and surveyors.

Practising as a chartered surveyor, John Lytton, 5th Earl of Lytton, chairs the RICS professional panel dealing with boundaries and party walls.  He steered the very successful Party Wall etc Act, 1996 through Parliament introducing a statutory procedure for resolving party wall disputes.  He has attempted, on several occasions, to do the same for boundary disputes but his Bills have, to date, failed in their passage through Parliament (as do most private member Bills).  He is presently attempting again with his Property Boundaries (Resolution of Disputes) Bill which had its first formal reading in the House of Lords in July 2017.  The second reading is yet to be scheduled.

If successful, the Act will introduce a procedure commenced by one land owner serving upon a neighbour notice making clear where the land owner purports the boundary between the two lands to be.  The neighbour has 14 days in which to accept or object to the proposal.  If an objection is made, a dispute will be deemed to have arisen.  As with the Party Wall Act, the parties can then jointly appoint a surveyor to resolve their dispute or, alternatively, each appoint their own surveyor.  The two party surveyors will then appoint a third surveyor to resolve the dispute.  If either party issues court proceedings, it shall not be entitled to recover costs.  If proceedings have already been issued, they will be stayed pending outcome of the statutory procedure.  The Bill also relates to disputes re rights of way.  Full details are contained in the Bill and its procedure through Parliament can be viewed on the UK Parliamentary Bills website.

In the meantime, readers may be familiar with ‘Property Protocols’.  The authors include two QCs and a junior barrister from Falcon Chambers and two partners from Hogan Lovells.  They have recently been joined by David Powell FRICS and have published their Boundary Disputes Protocol.  Whilst without any formal recognition, it is supported by the Property Litigation Association and a link to the Protocol and accompanying Guidance Notes appears on the PLA website.

An end to conflicts of interest?

Conflicts of interest have, for years, been something about which solicitors have been concerned.  They will not act for a client if to do so would or could be perceived to put them in conflict with their own interests or duties owed to another party.

In March 2017, the RICS, after consultation with its members, produced a Professional Statement re conflicts of interest.  Launched at MIPIM 2017, the Statement is to apply globally to all members of and firms regulated by the RICS.  Its provisions are mandatory and came into force on 1 January 2018.

It states “An RICS member or regulated firm must not advise or represent a client where doing so would involve a Conflict of Interest or a significant risk of a Conflict of Interest; other that where all those who are or may be affected have provided their prior Informed Consent.

A Conflict of Interest might arise where the duty owed by a RICS member or regulated firm to one client or another party in a professional assignment conflicts with

  • the duty owed to another client or party in the same assignment (‘a Party Conflict’);
  • the interests of the same member or regulated firm or individuals within that firm involved directly or indirectly in the same assignment (‘an Own Interest Conflict); or
  • the duty owed to one client to provide material information conflicts with the duty owed to another to keep the same information confidential (‘a Confidential Information Conflict’).

All identified Conflicts of Interest must be managed in accordance with the Professional Statement.  Regulated firms are to have in place effective systems and controls to ensure it and its employees comply.  Additionally, all decisions made as to whether or not to accept the assignment, to obtain Informed Consent or of measures taken to avoid a Conflict of Interest must be recorded.

Informed Consent can only be sought where the member or regulated firm is satisfied that proceeding, despite the Conflict of Interest, is in the interests of all those who are or may be affected, is not prohibited by law and the conflict will not prevent the member or firms providing competent and diligent advice to those who may be affected.

Will the Professional Statement see an end to conflicts of interest?  We wait to see.

Leases on houses to be banned in England and so much more!

Faced with a housing crisis, the Government has consulted upon its intentions and issued a press release, dated 21 December 2017, stating it will ‘crackdown’ on what it sees as ‘unfair and abusive’ leasehold practices.  The proposed measures will relate to England only.  Will they make a difference?  Only time will tell.  It could, however, be some time before progress is made.  Legislative steps will need to be taken and the Government has said it will be consulting with the Law Commission.

Interestingly, the Law Commission’s latest programme was also issued at the end of 2017 without the emotive language used in the Government’s press release.  Amongst its proposals, it lists matters it will be addressing in the law on residential leasehold.  Its residential leasehold project will start by addressing three issues it says have been ‘identified as priority areas’ by the Department for Communities and Local Government i.e. commonhold, enfranchisement and regulation of managing agents.  Sadly, for the Government, these ‘priorities’ appear some was away from the list of items on which it intends to ‘crackdown’.

The Government has its guns pointed at the grant of leaseholds for ‘almost all’ new build houses – it intends to ‘ban’ them.  The Government press release states ‘changes will also be made so that ground rents on new long leases – both houses and flats – are set to zero”.  It is also to be made cheaper and easier for existing leaseholders to buy their freehold and support is to be given to leasehold owners when faced with onerous leasehold terms.

Whilst not common outside the UK, the sale of residential properties on long leasehold terms (rather than freehold) is frequently encountered in England.  Government statistics show there were 4.2 million residential leasehold dwellings in England in the private sector in 2015/6 with 1.4 million relating to leasehold houses.  Communities Secretary, Sajid Javid said “It’s unacceptable for home buyers to be exploited through unnecessary leaseholds, unjustifiable charges and onerous ground rent terms.”  Those advising owners of historic buildings and estates are keeping an eye on what the Government means by ‘new-build’ – there are some people who fear the proposed new measures will apply to new leasehold interests regardless of when the property was built.  We wait to see.

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