The September 2010 edition of the Commercial Property Information Update is published today on this website.

In Somerfield Stores Ltd v Spring (Sutton Coldfield) Ltd [2010] EWHC 2084 (Ch) the High Court rejects the use of summary judgment applications as a way of forcing the landlord’s hand on an opposed 1954 Act application for lease renewal. Where a landlord opposes lease renewal on the basis of ground (f) (redevelopment), the landlord has to show, at trial, that he has formed the necessary firm subjective intention to redevelop, and that he has a reasonable prospect of being able to commence redevelopment on or within a short period of regaining possession. The question in this case was whether the tenant could catch the landlord out by applying for summary judgment, thereby bringing forward the “trial” date, in the hope that the landlord may be unable, at that time, to demonstrate a sufficient intention. The judge, HHJ David Cooke, held that such an application did not bring forward the date upon which the landlord was required to prove its intention. He said “much the preferable view is that the date of the hearing at which the necessary intention must be shown to exist is always the date of the substantive trial of the landlord's ground of objection.” The application for summary judgment was therefore dismissed. To allow such an application to bring forward the date for proof of intention “would introduce an unnecessary opportunity for the adoption of artificial tactics in an area of litigation which is, in my experience, already regarded by commercial parties as a costly tactical adjunct to their negotiations.”

The Community Right to Build is an interesting concept announced by the Coalition Government. The Government says that it is acting to remove red tape and bureaucracy that holds back a neighbourhood from improving its area. The Community Right to Build is at an embryonic stage. It part of the Government’s drive to create the “Big Society”. It will allow a community organisation to go ahead with development without the need for an application for planning permission, if there is overwhelming community support for the development, and minimum criteria are met. One wonders if one criterion will be: “Does not allow a landowner to develop land in a way that side-steps a clawback provision triggered by the grant of a planning permission”?

Late last month, on the British Property Federation’s website, a property industry working party established to explore the lease drafting implications of the Carbon Reduction Commitment published a summary of responses to its initial consultation launched in December 2009. The 22 page document can be seen by clicking on The Carbon Reduction Commitment Energy Efficiency Scheme (CRC): Consultation on the Treatment of the CRC in the context of Landlord and Tenant Relationships Summary of Responses Received.

As had already been announced last month in the Estates Gazette, the working party has not been able to identify a clear one-size-fits-all approach to the drafting problems presented by CRC. The summary concludes that: “The responses to the consultation revealed no consensus about the next steps to be taken. Even landlords did not agree amongst themselves. This makes it difficult to progress, as originally intended, to drafting a standard CRC lease clause.” It says that “It seems, therefore, inevitable that one single, industry-standard, CRC lease clause is unachievable in the short term, and indeed may be undesirable as it could be seen to stifle innovations in energy improvement between landlords and tenants. However, the working party believes there may still be merit in highlighting particular approaches that landlords may choose to follow, so that so far as possible similar structures are used to achieve the same objective and simplify the drafting and negotiation processes.”

Accordingly, the industry working party intends to publish a second edition of “The Carbon Reduction Commitment: A Guide for Landlords and Tenants‟, which is stated to be issued in July 2010, but is expected to be published later this month.

An appeal in the case of Area Estates Ltd v Weir [2010] EWCA Civ 801 has failed. Weir had contracted to buy freehold property from the appellant with vacant possession. In the register of title, there appeared an entry relating to a nine year lease of the property granted in 2004. The lease had allegedly been surrendered by the tenant, to the seller, in August 2006, but notice of the lease had not been removed from the register. In the sale contract, the seller promised to give vacant possession, and other terms stated that the lease, whilst still referred to on the register, had been determined by operation of law, and that the buyer would “accept the position and shall not be entitled to require any further proof of the determination.” Unfortunately, the lease had not been validly surrendered since, at the time of the alleged surrender, a petition in bankruptcy had been presented against the tenant. As the tenant had subsequently been declared bankrupt on that petition, the surrender was a disposition of property that was rendered void by section 284 Insolvency Act 1986. The buyer was therefore able successfully to rescind.

Moral of the case? (1) Clean the title up where a lease apparently comes to an end - especially if you intend to sell with vacant possession. (2) Treat all surrenders as acquisitions, so that you can be sure that the tenant has an unfettered right to effect the surrender.

For anyone looking for an analysis and summary of the law relating to dilapidation claims, they would be well-advised to read paragraphs 11 to 70 of the judgment of His Honour Judge Toulmin CMG QC in
PGF II SA & Anor v Royal & Sun Alliance Insurance Plc & Anor [2010] EWHC 1459 (TCC), and in particular his analysis of the assessment of damages in cases where a property has a latent development value which may (or may not) be realised at some stage in the future, giving rise to an argument that the possibility of valuable development means that there is therefore no diminution in the value of the reversion, whatever state the premises are left in. This, says the judge, is not a point that has been successfully argued in the 83 years since the statutory ceiling on damages was introduced by section 18 Landlord and Tenant Act 1927 Act, and was not a point he was now about to allow. He said: “It would be unreasonable if a landlord was told that he could not have the cost of the disrepair of the previous tenant because of a development value which at the date of the termination of the lease, he had no intention of realising.” Damages for disrepair, he says, are not ruled out by the latent development value of the property, unless the landlord intends to take advantage of it, or it was inevitable that such was the only reasonable decision likely to be taken.

The case of Berrisford v Mexfield Housing Co-operative Ltd [2010] EWCA Civ 811 runs up against the fundamental landlord and tenant rule of certainty of term, and explores whether there is a difference between the tenancy agreed to be created by an occupation agreement, and the agreement itself.

In this case, a “tenancy” was granted on by Mexfield on the following terms: “The Association shall let and the Member shall take the [property] from the 13th day of December 1993 and thereafter from month to month until determined as provided in this Agreement." The agreement provided for the tenant to terminate it by one month’s notice in writing. However, the only ability for the landlord to terminate was in clause 6 of the agreement which provided for termination in the event of a breach of the agreement by the tenant (e.g. arrears of rent). The fact that the tenancy would continue until termination at an uncertain future date therefore rendered it uncertain as a term, and void as a legal estate. (See Prudential Assurance Co Ltd v London Residuary Body [1992] AC 386).

However, could the contract between the original parties survive in equity, and be capable of specific performance, even though the tenancy arising out of the contract was void? The Court of Appeal held, by majority that it could not. Aikens LJ said that “in my view if the object of the original contract between the parties is to create an interest in land and that object is not achievable at law because the interest of land created would be of an uncertain term, then neither law nor equity should be able to enforce the contract between the original parties.” The tenancy agreed to be granted was therefore void. In its place was an implied periodic tenancy which Mexfield had properly terminated by common law notice to quit. Ms Berrisford could not rely upon the contractual right apparently given to her to occupy the property until either she terminated the agreement, or committed a breach of it.

This week’s Law Society Gazette includes a Warning on Identity Theft, reporting on a case in Bolton where the law firm SK Solicitors says that suspected property fraudsters or money launderers have been using fake notepaper to pose as and transact in the name of the firm.

Creating fake headed notepaper on a PC is a simple task. In the article, Law Society chief executive Desmond Hudson warns solicitors to ensure that they check the identity of a firm with the Solicitors Regulation Authority if they have concerns. Of course, checking on the SRA website will only confirm that the law firm with whom you are apparently dealing does indeed exist, as does the solicitor apparently on the other side of the transaction. It will not reveal that the person with whom you are dealing is an imposter. Lawyers need to look further for signs of fraud. The Law Society’s Practice Note on Mortgage Fraud warns that “Some fraudsters will try to assume the identity of professionals who actually exist. You should check that both the details and the final destination of documents match the details in the directory. You may consider contacting the firm directly by the contact details on the registry if you have concerns about the bona fides of the representatives on the other side to the transaction, particularly if there is a last minute change of representative.” Conveyancers should also be particularly vigilant in relation to email addresses that appear at odds with the firm’s name. Questions should be raised where a conveyancer uses a commercial email account (e.g. hotmail, yahoo, btinternet) that is not associated with the firm’s domain name, or name generally.

In Day & Anor v Hosebay Ltd [2010] EWCA Civ 748 (an appeal conjoined with Howard de Walden Estates Ltd v Lexgorge Ltd) Lord Neuberger MR has disagreed with earlier comment he himself made regarding what constitutes a “house” for enfranchisement purposes under the Leasehold Reform Act 1967, but has kept the door open for individual and corporate enfranchisements claims in relation to buildings such as town houses, now used for office purposes, but not sufficiently adapted away from residential design.

As forewarned in this month’s CPI Update, the Government has now made final The Competition Act 1998 (Land Agreements Exclusion Revocation) Order 2010 which revokes The Competition Act 1998 (Land Agreements Exclusion and Revocation) Order 2004 (SI 2004/1260) with effect from April 6, 2011.

The original 2004 Order excluded land agreements from the prohibitions on anti-competitive agreements imposed by section 2 of the Competition Act 1998 – known as the “Chapter I Prohibition”. By revoking the exclusion, land agreements will soon come within the Chapter I Prohibition in the Competition Act 1998. If an agreement falls foul of the Chapter I Prohibition, it will be unenforceable. Land agreements such as covenants restricting use after a sale, or developer-landlord agreements to restrict use of certain parts of new developments, or lease restrictions protecting a landlord tenant-mix policy may need to be looked at in the light of the Chapter I Prohibition.

The OFT says that it will publish guidelines this autumn on the application of the Competition Act to land agreements to assist businesses in the self-assessment of their agreements.