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.

What is a ‘trade process’?

The Chancellor is due to present his Autumn Budget on the 22nd of this month.  The market anticipates he will make changes to stamp duty and pension tax relief but will leave capital allowances alone.  We wait to see what is announced.

Capital allowances, a form of tax relief for both income tax and capital tax purposes, are intended to encourage businesses to invest in capital equipment (e.g. upon plant and machinery – see below) at the business’s own premises.  The phrase does not include the construction of a building or other structures nor works involving the alteration of land.

Enhanced allowances are available for the use of certain energy efficient products and the Government Department for Energy and Climate Change’s explanatory pamphlet published in October 2014 is well worth a read.

The expenditure must be made by the claimant in relation to its own business conducted at its own premises.  This is something to bear in mind and discuss with advicers if a landlord makes a contribution to, for instance, a tenant’s fit out costs on taking new premises.

The rules surrounding capital allowances are detailed and complicated but very basically, “plant and machinery” is widely defined to include air-conditioning, heating, lifts etc. used “in connection with services mainly and exclusively as part of manufacturing operations or trade precesses”.  The phrase ‘trade processes’ led to a perhaps surprising Court of Appeal decision in Iceland Foods Limited v Jane A Berry (Valuation Officer) [2016] EWCA Civ 1150 in which it was decided that a retailer selling frozen foods did not use refrigeration plant in a ‘trade process’.  The court held “Retail warehouses undertake a trade but not normally any trade process, certainly not so far as keeping the shop or the equipment therein at an appropriate temperature is concerned.”

Leave to appeal to the Supreme Court was granted in April 2017 so watch this space.

‘MEES’ – it’s all the rage!

In our newsletter of March 2015 we reported on the then forthcoming minimum energy efficiency standards in relation to both residential and commercial property rentals.  Enforcement all seemed a long time in the future but April 2018, when the Regulations become effective, is now just around the corner and ‘MEES’ is talked about everywhere.

Just by way of a reminder, from 1 April 2018 landlords of privately rented commercial and non-commercial properties in England and Wales will be unable to grant a new or renewed tenancy if their properties do not have an energy perforance certificate (‘EPC’) recording a rating of at least an E.  EPCs give an energy efficiency rating of anything from A (most efficient) to G and are required whenever a property is constructed, sold or rented.  From April 2020, all rented domestic properties must meet the minimum E rating (whether there is a change in a tenancy or not) and the rule will also apply to non-domestic rented property from April 2023.  Despite updated Regulations having been published in June 2016, there will be many landlords caught out by the implementation of MEES.

The Govenment Department for Business, Energy and Industrial Strategy has this month, October 2017, published guidance for landlords of both domestic and non-domestic properties.  Both are available on the Gov.UK website and are well worth detailed consideration.  They explain the regulations, relevant improvements which may be made to property in order to increase its energy efficiency rating, any exemptions, enforcement and the appeal system.

The effect of MEES on the rental market has obviously yet to be felt and there will be many questions still to be answered.  What happens, for instance, if a tenant makes an application for a new tenancy of its commercial property protected by the Landlord and Tenant Act, 1954 but the property has an energy efficiency rating of only F or G?  We wait with interst to see how the courts deal with this potential legal conundrum – will they force the landlord to conduct works or award the tenant damages for its lost right to a new tenancy?  Watch this space!

Proposal to further limit costs in the civil courts

The cost of litigation in the civil courts in England and Wales has long given cause for concern not least amongst the judiciary itself.  It was one of the matters addressed by Lord Woolf’s 1999 Reforms and the present Civil Procedure Rules incorporate fixed recoverable costs for fast track cases and costs budgeting for multi-track cases.  Nevertheless, “Transforming Our Justice System”, published in September 2016 by the Lord Chancellor, Lord Chief Justice and Senior President of the Tribunals, states “More needs to be done to control the costs of civil cases so they are proportionate to the case, and legal costs are more certain from the start.  Building on earlier reforms, we will look at options to extend fixed recoverable costs much more widely, so the costs of going to court will be clearer and more appropriate.”  The Rt Hon Lord Justice Jackson was asked to prepare a supplemental report to that presented by him re costs in 2010 and in July 2017, he proposed extending fixed recoverable costs to some multi-track cases.

Looking at cases issued in some of the new Business and Property Courts (see our Newsletter for August 2017), in which the claim is less than £250,000, LJ Jackson has suggested the adoption of an initial pilot scheme in which the total costs will be fixed at a maximum figure of £80,000 and the civil procedure adopted will be severely limited.  If the pilot scheme is successful, it will, potentially, be extended to all business and property cases claiming less than  £250,000.

This maximum costs cap will, of course, relate only to the recoverable costs payable to the successful party.  It will not prevent lawyers agreeing higher actual costs (incorporating their fees and disbursements paid, for instance, to counsel and any expert witnesses).  As LJ Jackson recognises, these costs are payable pursuant to a contract between a client and its lawyers although it will, he feels, incentivise lawyers to keep actual costs as low as possible or risk the client going to a cheaper competitor.  Whether it will or not waits to be seen but look out for an order of fixed costs in future civil cases.

Changes at court

Judicial concern about ‘Brexit’ and its effect upon the competitiveness of UK jurisdictions and dispute resolution systems in the face of international competition led to the establishment of the Brexit Law Committee.  The Chancellor of the High Court, Sir Geoffrey Vos, stated in June that the Committee would develop strategies with Government for maintaining and enhancing the utilisation, after Brexit, of English law and UK legal services, including all forms of dispute resolution.  Speaking to the Faculty of Advocates, he said the elephant in the room is “the competition the UK jurisdictions and English and Scots law face from other jurisdictions keen to attract commercial business away from the UK“.  Nevertheless, he continued, English law will remain a popular choice if not ‘the gold standard’ but “we cannot, however, just rest on our laurels“.  IT and the court system itself will need to change.

The first visible change was the launch, on 4 July, of the Business and Property Courts of England and Wales at which the Lord Chancellor, the Rt Hon David Lidlington MP stated “We’re here in this magnificent building in the heart of The City [Rolls Buildings] … and I suppose what we see here is the dignity and authority of our historic law courts married to the cutting-edge technology of the digital age.  And  what we’ve got, as a result, is a set-up that is state-of-the-art; that is specialist; that meets the challenges of handling litigation in the 21st century.”

Fine words and sentiments but is it what the law practitioner sees?  Sadly, often it is not.  The court administration will need to change if stories of lost and mislaid files, long and unnecessary adjournments and wasted costs are not to continue to circulate.

But the newly named courts herald reform and, says the Lord Chancellor, “bring a welcome clarity to the focus and range of legal services that the UK offers at the highest level.  A more integrated system of business and property courts will mean judges can be cross-deployed to maximise the benefit of their particular qualifications.”  These courts will not just be located in London but will be in other cities, too.  We wait with interest to see how they develop.

You can’t park there!

In its June 2011 Report to Parliament, ‘Making Land Work: Easements, Covenants and Profits A Prendre’, the Law Commission stated the time was ripe for a comprehensive review and reform to this area of law.  On 18 May 2016, following the Queen’s Speech, the Government announced it would bring forward proposals to respond to the Commissioners’ recommendations in a draft Law of Property Bill.  No such Bill is currently before Parliament although the website states that Draft Bills for the new Session of Parliament will be added when confirmed.  We wait with interest.

In the meantime, the courts continue to determine issues arising and one question which has always caused difficulties is the extent of an easement.  It is there to accommodate the dominant tenement but what happens if the dominant tenement is extended?  The point arose in Gore v Naheed and anor [2017] EWCA Civ 369 giving the Court of Appeal an intersting opportunity to review the law as it presently stands.  The dominant land, owned by Mr Gore and known as The Granary, had the benefit, in common with other lands, to a right of way to go with animals, carts and wagons and return over the servient land which connected the site to the public roadway.  It was common ground that Mr Gore could drive a car or other vehicle to the front door of The Granary and to park there for the purposes of loading and unloading the vehicle.  However, land adjoining The Granary was obtained by adverse possession upon which Mr Gore built a garage for his property.  The question before the court was whether or not Mr Gore could obtain direct access to the garage for the purposes of leaving a car parked there for an indefinite period.  Previous cases had determined that an easement cannot be used to increase the overall use of an easement but might be used for an ancillary use of the dominant land.  Considering the facts and terms of the grant, the Court of Appeal agreed with the first instance judge that Mr Gore could park his vehicle in the garage so long as it were not let or used by a third party.

To whom does it belong?

The High Court case of Signature Reality v Fortis Developments [2016] EWHC 3583 (Ch) contains important reminders from the judge re planning matters.  First “Anybody can apply for planning permission to develop any land and any granted permission relates to the land and what may be done with it.  There are no statutory or other intellectual property rights in the planning permission itself; anyone may avail themselves of it so long as they satisfy the conditions.”  Second, “when an architect is engaged by a client to prepare drawings to obtain planning consent for a development, there is an implied licence to the client to use the drawings for all purposes connected with the erection on the site of the development to which the plans relate, and the client can transfer that licence to a purchaser of the site.”  (See Blair v Osborne & Tomkins [1971] 2 QB 78.)  Third, “It is usual that planning permission is granted by reference to drawings which illustrate the existing and proposed development and it is usual for there to be a condition of the grant that the development is carried out in accordance with specified drawings.  In that way the local authority controls any development in its locality.”

It was against that background that the judge had to consider the facts in the Signature case.  Two parties were interested in purchasing two office blocks with the intention of turning the buildings into student accommodation.  One party applied for and obtained planning permission but it was the second party that bought the properties.  In carrying out its development, the purchaser used the other party’s drawings referred to in the planning permission for marketing, development and construction purposes.  The drawings were readily available on the local planning authority’s website.  The unsuccessful proposed purchaser claimed breach of copyright in respect of each document.

The judge examined each allegation and did find breach of copyright.  However, he refused to assess damages (ordering an account) and refused an injunction and additional damages under s97(2) Copyright, Designs and Patents Act, 1988.  Nevertheless, the case stands as a warning not to forget the law relating to copyright even in publicly produced documents.

Punishing the wrong doer?

The general rule of law in England and Wales relating to the assessment of damages for breach of contract or tort is that the injured party should be compensated for its proven loss.  It is not the purpose of an award for damages to punish the wrong doer.

However, in the 1974 case Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798 the court, faced with a defendant developer who had built in breach of a restictive covenant and a claimant who had suffered not ‘one farthing’s worth’ of damages, refused an injunction to pull down constructed housing but awarded damages in lieu at a figure which one might reasonably expect to be demanded of the developer for relaxing the covenant.  The sum was assessed as a percentage of the developer’s profit.  The principle became known as ‘Wrotham Park damages’ and has been applied where a defendant is in deliberate breach of a covenant or tort but the claimant cannot identify actual financial loss.

In the recent case Morris-Garner v One Stop (Support) Limited [2016] EWCA Civ 180, the Court of Appeal upheld the first instance decision that the absence of identifiable financial loss as an absolute requirement for an award of ‘Wrotham Park damages’ was in error and upheld an award of damages in order to avoid an obvious injustice.  In that case, a breach of contract concerned the conducting of a competitive business.  The court analysed the Wrotham Park principle which analysis is now to go to the Supreme Court (on a date to be announced).

The courts have long expressed their opposition to a party which deliberately breaches a contract or tort but have applied the Wrotham Park damages principle sparingly.  The Supreme Court judgement is much awaited by many including Hatherleigh Training.

Doing the washing up!

MPs have voted in favour of the PM’s motion that the country should go to the polls meaning the present Parliament will be dissolved 25 working days before the 8th June unless it is prorogued (i.e. suspended) earlier.  At that stage, any legislative issues, be they in public or private bills, before either the House of Commons or Lords, will fall.  Prior to then, the government will attempt to reach agreement with the opposiiton re passing pet pieces of legislation but many controversial proposals will have to be dropped.  This intervening period is commonly known as ‘wash up’.

There are numerous Bills presently before Parliament covering everything from air quality, bats, energy, housing, neighbourhood planning, prisons and courts.  We will have to wait and see which, if any, of these Bills will catch the eye of those deciding which pieces of proposed legislation will be pushed through during the wash up period.

Any which fall could of course be re-introduced by the new government.  There will be many who wish to see more support for, for instance, neighbourhood planning which will build on the reforms introduced by the Housing and Planning Act, 2016 and give local communities ‘real statutory weight in the planning system’ (see the Department for Communities and Local Government fact sheet entitled Neighbourhood Planning).  This fact sheet reports that some ‘2000 groups have started the neighbourhood planning process since 2012′ leading to over 280 successful neighbourhood planning referendums having taken place.  Over 260 community plans have been adopted and are being used as a starting point for determining local planning applications.

Watch this space for more news in due course.

It all turns on the facts of the case

In November 2016 we considered business rates.  We mentioned the awaited Supreme Court judgement in Newbigin v SJ & J Monk.  Published on 1 March ([2017] UKSC 14), the question before the court was in circumstances where premises are stripped out for refurbishment, at what point are they incapable of beneficial occupation and not liable for business rates?

Having accepted a surrender of a lease for a single office suite, the landlord completely stripped out the property with the intention of creating adaptable space either to be used for single occupancy or for three separate suites.  The building works included removal of all internal components excepting enclosures for lift and stairways leading to other floors.  Suspended ceilings, raised floors, masonry walls, partitioning, electrical, sanitary and drainage systems were all removed.  Whilst the works were conducted the landlord’s agents proposed a rateable value reduction for the premises from the previous £102,000 to £1.  The valuation officer refused and an appeal was lodged with the Valuation Tribunal.  The Tribunal held the premises were out of repair but assumed in reasonable repair pursuant to the Rating (Valuation) Act, 1999.  The Upper Tribunal did not agree – the works went beyond those for disrepair and reduced the rateable value to £1.  The Court of Appeal overturned the decision and the case came before the Supreme Court.

Their Lordships concluded the premises were undergoing reconstruction on the material day and that the Upper Tribunal was entitled to alter the rating list as it did (i.e. giving a rateable value of £1) to reflect the reality of the stripped out premises.

Whilst welcomed by all business rate payers, the decision is based on the very particular facts of the case and the works being conducted.  Care should be taken in applying the decision to other facts and circumstances.

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