February 2013

EvershedsInFocus...

Focus

Real Estate Dispute Resolution

Following the High Court decision in the Makro cash and carry case reported in the last edition of In Focus, two further decisions have increased the pressure on councils over empty rates avoidance schemes.

The first case: Preston City Council v Oyston Angel Charity [2012] EWHC 2005 (Admin)

Oyston Angel Charity (OAC) was a registered charity that had entered into a licence agreement with the freehold owner of a number of commercial units in Preston. The licence agreement allowed OAC to occupy the units for the permitted use of charitable purposes only. The terms of OAC’s licence allowed it to sub-license the units provided that it was for “charitable services”.

Preston City Council (PCC) issued demands for payment of business rates in respect of eight units, which OAC did not pay. PCC then applied to the Magistrates’ Court for a liability order. The magistrates found that OAC did not itself intend to occupy the units but,

Empty rates liability: the charitable saga continues...

primarily on the basis of the restriction on the use to which sub-licensees could put the property, they were satisfied that when next in use each unit would be wholly or mainly used for charitable purposes.

PCC appealed, arguing that zero-rating would only apply if it appeared that, when next in use, the property would be occupied and used by the owning charity itself, that is OAC. However, upholding the magistrates’ decision, the High Court ruled that there was no such requirement. The focus of the scheme was on ownership, and not on occupation.

OAC was therefore exempt from non-domestic rating liability on the basis that the occupiers or users of the units (whether or not OAC) would be charities. However, the High Court stressed that this conclusion was based on the issues that the magistrates had before them, which did not include the possibility that any sub-licensees might have charitable purposes entirely different from those of OAC.

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The second case: Cheshire and West Chester Council v Public Safety Charitable Trust (unreported)

The Public Safety Charitable Trust Limited (PSCT) is well known to most local authorities, occupying somewhere in the region of 1000 properties across the UK, by way of a small Wi-Fi device, from which public safety messages are broadcast.

A large number of councils have taken the view that, in the circumstances of the occupation, PSCT are not entitled to charitable relief on non-domestic business rates and have issued liability order proceedings against them for outstanding business rates.

In the latest case, the Cheshire and West Chester Council (CWCC) had originally granted both the mandatory 80% and additional 20% discretionary rates relief to PSCT. However, it subsequently cancelled the discretionary relief after receiving a

“large number” of similar applications from the charity in respect of other properties in the area. The Council applied to the Magistrates’ Court for liability orders, which PSCT challenged.

The Court found that the law was clear that the installation of wireless transmitters within the property counted as “occupation” for the purposes of calculating the property’s rateable value, since periodic access to the property was needed for maintenance purposes. CWCC has now appealed this decision.

It is noteworthy that PSCT has issued appeals against South Cambridgeshire District Council and Milton Keynes Council, who both won their cases against PSCT at first instance. These appeals have been linked and are now listed for an appeal hearing in mid-May 2013. It is anticipated that CWCC will also seek to have their appeal linked to the existing proceedings.

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Key points:

• The Court’s decision in the Oyston case leaves open the question of whether the rules require a sub-tenant or sub-licensee to have charitable purposes that are the same or similar to those of the head-tenant or head-licensor.

• It is clear that the courts at first instance have taken a differing approach in the PSCT cases and therefore, provide little guidance for local authorities seeking to apply the statutory regulations in relation to charitable relief.

• It is hoped that the linked appeals in the PSCT cases will provide some much needed clarity but in the meantime, Councils will be entitled to investigate each application fully and where there is evidence of a charity entering into commercial transactions with any of the parties involved, charitable relief may be refused. STOP PRESS - in the unreported first instance case of Chiltern District Council v Principled Partnership Limited and Heathcote Distribution Limited, the Court followed the Makro High Court decision and held that the provision of short term storage facilities by a business whose principal aim was to assist landlords to mitigate their rates liability was sufficient beneficial occupation to enable the landlord to avoid non domestic rates liability (even where it was found that some of the storage boxes were empty!).

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The case: E.ON UK plc v Gilesports Limited [2012] EWHC 2172 (Ch)

This case highlights the need to satisfy strict procedural steps in connection with applications to assign a lease. Here, E.ON was head-tenant of a property which had been sub-let to Gilesports.

The sub-lease had been assigned without consent, and the assignee had gone into administration; E.ON therefore wished to establish that Gilesports remained liable on the tenant’s covenants, and the principal issue was whether the assignment was unlawful. If so, Gilesports would be liable.

The High Court decided that Gilesports’ application to assign the sub-lease had not been “served” for the purposes of the Landlord and Tenant Act 1988, since the formalities provided for in the sub-lease for service of notices had not been followed. This meant that the 1988 Act duties did

Have you properly applied for consent to assign?

not arise: the landlord was not obliged to act reasonably, or to give consent within a reasonable period. It followed that it had not been lawful to assign the sub-lease without consent, and Gilesports remained liable.

For good measure, since the assignment had not been registered at the Land Registry, the transfer was void and the legal estate reverted to Gilesports, providing another route to liability.

Key points:

• This case highlights the need to comply strictly with service formalities when applying to assign a lease, or to sub-let. The applicant must ensure its application is served on the right party in the right way. If serving on an agent, always confirm that the agent is authorised to receive the application.

• The formal service requirements also apply to a landlord giving notification of its decision, so landlords who wish to avoid allegations that their decision has been unreasonably withheld or delayed must also be alive to the point.

• If you assign a lease, it is worth ensuring that (where necessary) the new tenant registers the assignment at the Land Registry.

Make sure your development isn’t parked!

The case: Kettel & Others -v- Bloomfold Limited [2012] EWHC 1422

A recent High Court decision has provided a salutary reminder to developers of the risks of ignoring the rights of neighbours.

In this case, 8 long leaseholders of residential apartments held rights to park on designated spaces within the development’s car park. They took action against the freehold owner who had obtained planning permission to construct a new residential block upon the area occupied by their parking spaces. Prior to commencing construction works, the developer had unilaterally sought to relocate the position of the designated parking spaces and, as part of that process, fenced off the existing spaces to prevent the leaseholders gaining access. The leaseholders sought an injunction preventing the obstruction of their parking rights and the commencement of the construction works.

Having concluded that each leaseholder’s right over their parking space constituted an easement, and did not form part of their demise, the Court went on to hold that:

• The freehold owner had no implied right to vary the position of the parking spaces unilaterally; and

• Fencing off the leaseholders’ designated spaces was an actionable interference with the parking easements.

The Court decided that the appropriate remedy was to grant the leaseholders an injunction preventing the obstruction of the easements. In doing so, it decided against granting damages in lieu of an injunction.

Key points:

• This decision is a continuation of the general judicial trend to order injunctions rather than damages as the remedy for interference with property rights. Developers can no longer consider the prospect of an injunction being awarded in these circumstances as a low risk and, therefore, should approach issues of third party ancillary rights with caution.

• The normal rules on damages in lieu of an injunction still apply, so if the impact on the tenant’s rights is trivial and can be adequately compensated by damages then an injunction may still be avoided. This case confirms that the Courts are toughening their stance on what is considered ‘trivial’.

• When selling off part of the development, developers are best advised to seek to insert ‘lift and shift’ provisions into plot sales, giving it the potential to relocate easements in order to retain some flexibility whilst the development is finalised.

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The cases: Day and another v Hosebay Limited; Howard de Walden Estates Limited v Lexgorge Limited [2012] UKSC 41

The leasehold enfranchisement legislation is designed to improve the position of residential tenants, by giving them rights in certain circumstances to buy the freehold interest of the property in question. An investor in commercial property will not expect to find his tenants trying to take advantage of it, and can now derive comfort from this decision of the Supreme Court, which has unanimously overturned the decision of the Court of Appeal as to the definition of “house” in the Leasehold Reform Act 1967.

In both cases, the tenants of the properties in question had applied to purchase the freeholds from their landlords pursuant to the Act and the success of the application hinged on whether the properties satisfied the definition of “house” contained in section 2(1) of the Act. That definition contains two main limbs:

• that the building is “designed or adapted for living in”, notwithstanding that it is “not structurally detached, or was or is not solely designed or adapted for living in”; and

• that the building is a house “reasonably so called”.

Here, like a good many properties, the buildings had originally been designed and built as houses, but were at the time of the tenants’ applications used purely for commercial purposes (in this case a a self-catering hotel and offices). In both cases the Court of Appeal held that the building

When is a house not a house?

was a “house” for the purposes of the Act on the basis that, in essence, if it was built as a house and/or now looked like a house it would be a house “reasonably so called”, irrespective of its actual or intended use.

The Supreme Court has concluded that the Court of Appeal’s decision was not the result intended by Parliament. It held that the definition of “house” in the Act needs to be read “in the context of a statute which is about houses as places to live in, not about houses as pieces of architecture or features in a street scene”. The fact that the buildings looked like houses and might be referred to as houses for some purposes was not sufficient to displace the fact that their use was entirely commercial.

Key points:

• This closes up a loophole which commercial tenants sought to exploit in an attempt to buy the freeholds to their properties. The Supreme Court has made it clear that, when deciding what is or is not a “house” under the 1967 Act, substance prevails over form. The decision is a much needed dose of reality in this area of law.

• This case is a useful reminder of the often overlooked difficulties that residential aspects of property can cause in a portfolio. However, clearly this is a sensible decision that will be welcomed by landlords of commercial premises that have been residential houses in the past.

• The case does however leave some important questions unanswered? How are mixed use premises to be treated?

Seeing the light?

The case: CGIS City Plaza Shares 1 Limited and another v Britel Fund Trustees Limited [2012] EWHC 1594 (Ch)

The existence of rights of light can significantly impede development. Although rights of light can be expressly granted, many rights are obtained by prescription through 20 years’ use (section 3, Prescription Act 1832). Generally, once a window has enjoyed uninterrupted access to light for 20 years, the right to access that light becomes absolute. Any development of neighbouring land must be carried out without substantial interference with the use and enjoyment of the neighbouring landowners rights.

However, s.3 of the 1832 Act also provides that the acquisition of rights to light by prescription can be avoided if the access to light is enjoyed by written consent. Therefore, when part of land is transferred, the buyer and seller will often each take from the other reciprocal rights to build on their respective

pieces of land, even if such development would obstruct access to light on the other piece. Such a right can, depending on the wording used, be construed as a consent to have access to light, pending any exercise of the right to build.

In this case, the court considered a 1967 transfer which contained such provisions for the benefit of both the buyer and seller. The court concluded that the rights to build granted in the transfer constituted written consent for the purposes of s.3. Although the original buyer and seller of the land had subsequently sold their interests on, the buildings on both the retained and transferred land enjoyed access to light by consent and such access could therefore be interrupted. No rights to light by prescription could arise.

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Key points:

• Consider whether rights to build should be contained within any transfer of land (whether buyer or seller). Ensure the provisions in the transfer are clearly drafted to show whether access to light or any other amenities are enjoyed by consent, which land is to benefit from those amenities, and what building work may be carried out. The transfer should also make it clear that the amenities are enjoyed by consent or agreement for the purposes of s.3.

• A right to light acquired by prescription must be enjoyed for 20 years without any interruption. To prevent a right being acquired by prescription, a light obstruction notice can be lodged with the local authority. Interruption must be for one year, so effectively a right to light by prescription arises if it is enjoyed uninterrupted (whether by notice or otherwise) for 19 years and one day. This must be borne in mind when calculating when an obstruction notice should be lodged – in short, if you fear a right may have arisen, lodge a notice sooner rather than later!

• The primary remedy for an actionable interference with any rights to light is an injunction. Therefore resolving rights to light issues as early as possible is beneficial - learning it too late can lead to well advised adjoining owners seeking to recover ransom payments.

SnapshotsSuffered loss?This recent case of Platform Funding Limited v Anderson & Associates Limited [2012] EWHC 1853 (QB) involved an alleged overvaluation of a newly built flat. The lender alleged that the surveyor overvalued the flat at £274,995. The Court agreed and found that the valuer had not acted with proper skill and care. However, the sale took place as part of a large-scale fraud perpetrated by the seller of all the flats in the development, part of which involved valuers being provided with misleading comparables. The judge found that even if the valuer had acted with reasonable skill and care, he would not have discovered any further information to suggest that the valuation was too high, due to the fraud.

The Court concluded that valuer had been misled into providing the overvaluation due to the fraud. The lender’s loss was caused by the fraud and not by the negligence of the valuer.

Key points:

• It must be remembered that causation is a key part of any negligence claim; it is generally always necessary for any claimant to prove that the alleged loss arises as a consequence of the breach of duty of care.

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Update on Defective Premises The recent cases of Hannon v Hillingdon Homes Limited [2012] All ER (D) 128 (Jul) and Drysdale v Hedges [2012] All ER (D) 345 (Jul) provide useful guidance on the extent of a landlord’s duty of care both to the tenant and others under section 4, Defective Premises Act 1972. This duty extends to both commercial and residential landlords.

Under the Act, a landlord has a duty to ensure those accessing the landlord’s premises are “reasonably safe from personal injury or damage to property caused by a relevant defect” (i.e. caused by a breach of the landlord’s repair obligations). The duty will arise where: (a) a tenancy imposes an obligation on the landlord to repair the premises; or (b) the tenancy gives the landlord the right to enter the premises to carry out repair.

Key points:

• Where leases give landlords the right to enter premises to carry out works, the duty under the Act will arise irrespective of whether that right is exercised. In such circumstances, it is vital that regular inspections are carried out to ensure that there are no relevant defects.

• Liability under the Act may arise even if the disrepair is caused by the tenant.

• A landlord will not generally be liable to rectify any defects that existed at the start of the tenancy. However, even where repair obligations are non-existent or do not apply, a landlord still owes a common law duty to take reasonable care not to create an unnecessary risk of injury when carrying out works to the property.

10% damages increaseThe Lord Chief Justice used the case of Simmons v Castle (an otherwise unremarkable personal injury matter) to confirm the judiciary’s approval of reforms to civil damages payments, proposed in a recent report by Sir Rupert Jackson LJ, and provided for in legislation that will come into force on 1 April 2013. In judgments given from that date, the judiciary will increase damages awarded in many civil claims by 10%, including those relating to property disputes, where the claim involves a nuisance action, or where suffering, inconvenience or distress is caused to individuals.

Key points:

• Following an application to intervene from the Association of British Insurers, the Court of Appeal has reopened the appeal, in order to reconsider the issues raised. This includes re- analysing the impact of the increase to damages awarded where conditional fee agreements, or after the event insurance, are in place. Watch this space for further updates!

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Squatting in a residential building becomes a criminal offence Section 144 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 came into force on 1 September 2012, creating a new offence of squatting in a residential building. A person will commit the offence if they both enter and remain in the building as a trespasser, with the intention to live there, and in the knowledge that they are a trespasser. A building is ‘residential’ if it is designed or adapted for use as a place to live, and ‘building’ includes moveable structures. These elements of the offence suggest that:

• it will not apply to tenants holding over;

• it will not apply to shop-squatters; and

• it will probably apply in relation to caravans and house-boats.

Key points:

• The courts will have to work out how this will apply in specific instances. For example, if a student sit-in occupies a university hall of residence, is an offence committed? (Perhaps the answer to this particular example will differ according to whether actual accommodation units are occupied, as opposed to common parts.)

• Previous measures to attach criminal sanctions to certain types of trespass have been ineffective because of the reluctance of the police to enforce existing laws. Time will tell whether the new offence will be enforced with more enthusiasm, at a time when police resources are under pressure more than ever; and indeed whether the police will take a robust line when trespassers produce a bogus tenancy to justify their occupation.

Motion picturesWhat we’ve been up to...

Judicial review

The London team have received the eighth successful judgment in the ongoing Humber Oil litigation. Associated British Ports have successfully opposed an application by Humber Oil, a joint venture owned by Total and Phillips 66, which brought a claim for judicial review in respect of the Marine Management Organisation’s rejection of their application to acquire compulsorily an interest in the Immingham Oil Terminal.

West End flooding

The Cambridge team is advising one of our retail clients on a flooding issue at one of the most prestigious recent developments in the West End. Its ground floor showroom has been badly affected by the recent unseasonal downpours and the client is considering claims against its landlord, the contractor and their insurers.

Westgate redevelopment, Oxford

David Feist and Chris Preston are advising Land Securities and the Crown Estate on vacant possession strategy and acting in a number of contested redevelopment lease renewals in Oxford, relating to the £300million redevelopment and extension of the Westgate Shopping Centre.

Agriculture

Lisa Barge is preparing to deliver training around six cities (via a national training provider) in the Autumn on agricultural tenancies and their impact for clients who are not in the agriculture sector but come across such issues (agriculture is an area in which Eversheds is one of the few large firms to specialise).

Wind farm

The London team have successfully defended a Section 288 challenge on behalf of Renewable Energy Systems in respect of a proposed wind farm development at Jack’s Lane near Kings Lynn in Norfolk. This was despite the Secretary of State offering to consent to the quashing of the order days before trial.

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Scotland

Our Edinburgh office has been instructed to apply to the Lands Tribunal of Scotland to seek a discharge or variation of a title condition hindering residential development on a site in Edinburgh. Simultaneously, we are also instructed to apply to court for the discharge of a standard security over the same property.

Dilapidations

James Batham and the Manchester team are in the contest of a £1m+ dilapidations case, seeking to review the obiter comments made by the learned judge in the K/S Victoria Street -v- House of Fraser case and whether in fact a party can assign validly a lease to a guarantor.

Mediation

Kath Cook has just concluded a successful mediation of a multi million pound valuer’s negligence claim in respect of a portfolio of buy to let properties.

Restrictive covenant dispute

Kath Cook and Julie Dilcock have also been advising a transport client on a restrictive covenant dispute affecting substantial office premises in central London.

Possession

Acting for a retail client, Paul Moorcroft and Rob Holloway successfully defended a rather unusual attempt by a landlord, opposing a new lease under the Landlord and Tenant Act 1954 on grounds of redevelopment, to obtain possession through a summary judgment application. Eversheds also successfully acted for the landlord in Somerfield Stores Ltd v Spring (Sutton Coldfield) Ltd [2009]; the only reported decision to-date on this particular topic.

Arbitration

The Newcastle office is acting for a developer in significant arbitration proceedings against a national housebuilder regarding remediation of a valuable development site in the Midlands. The arbitration is reaching its conclusion over the next few weeks.

Focused on real estate dispute resolutionWhat we do for our clients

The Eversheds Real Estate Dispute Resolution team provide creative solutions to all property-related problems, acting for institutional landlords, tenants and real estate developers. More importantly we will help you avoid these problems in the first place.

We organise around our clients; accessible in London but with broad coverage across the

Did you know?

1 We have the largest real estate dispute resolution team in the UK: ten partners; sixty lawyers; including a Scottish qualified real estate dispute resolution lawyer and a full time specialist practice support lawyer. The team have built up a specialist knowledge which is unrivalled.

2 Our wealth of experience includes acting for both landlords and tenants in disputes, specifically in the UK’s leading rating dispute case.

3 We make the law - we win high profile cases at the Supreme Court, Court of Appeal and in other tribunals with reported leading cases every month. Our cases often lead the debate on current issues and our comments are sought and articles written in The Lawyer, Property Week and Estates Gazette.

4 We have extensive sector and international experience demonstrated by our work for AXA, BBA Aviation, Barclays, Comet, Defra, East Coast Trains, EDF, Faurecia Group, Hammerson, Homes and Communities Agency, HSBC, JD Sports, Land Securities, Legal and General, Mitchells and Butler, National Grid, Network Rail, NEXT, Segro and Taylor Wimpey.

5 We work on high profile developments on a range of issues including the Shard of Glass for a major Qatari investor, Shaftesbury in substantial litigation connected with its various development projects and acting for the Olympic Park legacy vehicle in a large number of disputes and development agreements relating to key relocations as well as on easements and rights. We are also acting on the enforcement of the ‘AGA’ against the defunct firm Halliwells.

6 We have surveyed our clients independently through Acuigen and received feedback on over 300 cases. 97% of our clients would recommend Eversheds for litigation work.

UK and internationally. We have unbeatable market knowledge by keeping close to our clients and the key commercial players and by using a networked approach to ensure that this knowledge is managed and transferred.

Where possible we employ the strategic use of ADR and mediation. Established links with leading experts (Counsel, rating experts and surveyors) can offer preferential rates and allow us to test ideas.

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What the market says about us

Our Real Estate Dispute Resolution team is highly recommended by legal directories.

Each of our ten Partners is recognised in the Legal 500 and Chamber & Partners Directories as leaders in their field and a number of Associates are noted as rising stars.

It is a team you can count on, recently winning plaudits in the Legal 500 and Chamber & Partners Directories for:

“...outstanding reputation and national reach...”“...superb breadth and depth of expertise, which is second to none...”“...leaves no stone unturned for clients...”“...good commercial awareness, strong team working and good legal analysis...”“...high-end litigation expertise to an ever-growing client roster... a formidable outfit...”

What our clients say about us

Client reviews really speak for themselves. Here are some of our most recent reviews from the last few months:

“ ”Controlled events with great expertise.

Southern Scientific

“ ”

It was a great result and the advice that we were given was excellent.

HCA

“ ”

Thier knowledge and their turnaround time was praiseworthy: they treated us like a top priority client.

Prometric

“ ”

It is the experience and knowledge that sets them apart.Mitchells and Butlers Retails Limited

“

”

Always a pleasure to deal with, and delivers clear confident advice, follwed by strong supporting action where appropriate.Forestry Commission

“ ”

Very creative and commercial; good communication, and good quality advice.

CALA Properties

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This briefing is correct as at 31 January 2013. It is intended as general guidance and is not a substitute for detailed advice in specific circumstances.

Data protection: Your information will be held by Eversheds LLP (“Eversheds”), in accordance with the Data Protection Act 1998, and added to our marketing databases. It may be used for internal statistical analysis, to fulfil any requests from you for further information and services and, unless you have asked us not to, to contact you about other services or events offered by Eversheds or our associated offices. We may pass your details to our associated offices (some of which are outside the EEA), but we will only allow their use for the purposes mentioned above. We may also transfer your details to any successor to our business (or a relevant part of it). An up to date list of our associated offices and their locations can be found on our website at www.eversheds.com. This privacy statement applies to all information that we hold about you.

If you do not want your information to be used in this way or your information is incorrect, please contact Events & Ops Centre by writing to Eversheds LLP, 115 Colmore Row, Birmingham B3 3AL or send an e-mail to mktg_ops@eversheds.com. Alternatively call +44 121 232 1000 and we will assist you with your queries.

Contacts

Paul MoorcroftPartner, Head of Real Estate Dispute ResolutionTel: 0845 497 1277paulmoorcroft@eversheds.com

James BathamPartnerTel: 0845 497 8131jamesbatham@eversheds.com

Kath CookPartnerTel: 0845 498 7165kathryncook@eversheds.com

John KemkersPartnerTel: 0845 497 4772 johnkemkers@eversheds.com

Lisa BargePartnerTel: 0845 497 1143lisabarge@eversheds.com

Alison OldfieldPartnerTel: 0845 498 4660alisonoldfield@eversheds.com

Will DenshamPartnerTel: 0845 497 0582willdensham@eversheds.com

Damian HyndmanPartner Tel: 0845 498 4073damianhyndman@eversheds.com

David FeistPartnerTel: 0845 497 1330davidfeist@eversheds.com

Suzanne GregsonPartnerTel: 0845 497 8242suzannegregson@eversheds.com

If you have any comments or questions, please contact one of the following:

www.eversheds.com©EVERSHEDS LLP 2013. Eversheds LLP is a limited liability partnership. DT01284