Real Estate

The electronic communication code – an end to “nomophobia”?
22 June, 2017

What does the Motorola DynaTAC 800X and an iPhone 8 have in common?  On a technology front, very little.  However, they were both released in landmark years for the telecommunications industry.  The Motorola in 1984, the year the Telecommunications Code (part of the Telecommunications Act) came into force to govern the relationship between landowners and telecoms providers wanting to put equipment on land.

 

Apart from minor amendments to the code, in 2003, it has remained unchanged while the telecommunications industry is unrecognisable.  The iPhone, expected the be released in 2017, is an example of how much technology has changed.  However, one only has to look around to see how dependant the world is on mobile phones which is driving a demand for greater network coverage by telecoms operators/providers.  That, in part, has resulted in the government introducing a new Electronics Communication Code (as part of the Digital Economy Act) which will come into force later this year.  Perhaps this will herald the end of “nomophobia”, a fear of being out of mobile phone contact.

 

The new code deals with how telecoms operators/providers are allowed to install and maintain electronic communications apparatus on public land.

 

As lawyers, we can deal with new formalities for documenting the code but there are some interesting points for both providers and landowners to bear in mind.

 

  • Leases/licences or any agreement within the code will not benefit from security of tenure under the Landlord & Tenant Act 1954.
  • Code rights will bind new owners of land, even if leases/agreements are not registered at the Land Registry.
  • The Code gives operators the right to share sites with other operators and/or assign rights without a landowner’s consent.
  • Operators will be able to upgrade installations under the Code (subject to upgrades having an adverse visual impact or additional burden on the land).
  • Rents paid by providers/operators are likely to fall.  Rent will be calculated on the basis of the land/site’s value to a landowner (not the operator).
  • Consequently, it will be less attractive for landowners to rent out roof space to telecoms providers/operators but the court can impose a code agreement on a landowner.
  • Landowners should therefore try and conclude negotiations under the existing code as soon as possible for the current valuation methodology to apply.
  • There is a two stage approach to terminating an agreement and getting equipment removed which initially requires a minimum 18 month termination notice.  Landowners will need to plan ahead.
  • Once an agreement is terminated (which will involve court proceedings) a further notice is required before the removal procedure under the code can be implemented.  Unless the removal procedure is followed, no possession order will be made.

 

The above is of course very broad brush but the take home message is that the new code is very much in favour of operators/providers in a bid to facilitate the continued growth of the technology sector.  Under the Digital Economy Act, Ofcom is required to produce a code of practice to accompany the Communications Code and a consultation on that finished on 2 June.  Once that code of practice is finalised, it will be interesting to see how operators in practical terms are likely to utilise the provisions of the new Communications Code.


Service of notices: a reminder
2 June, 2017

 

The Court of Appeal decision in Grimes v Essex Farmers & Union Hunt Trustees is a useful reminder of potential traps for the unwary when it comes to serving notices.  The case turned on whether service by a landlord of a notice to quit was valid.  The notice was served on the address stated in the tenancy agreement as the tenant’s address but in circumstances where the landlord knew the tenant’s address had changed.  The tenancy agreement provided that either party may serve notice on the address given in the particulars or such other address as has previously been notified in writing.  The landlord assumed this to mean service at the either was fine.  Chelmsford County Court agreed.  The Court of Appeal took a different view however.

 

While cases like this ultimately turn on the meaning of words in a specific agreement a few general observations can be made:

 

  • It is almost always the case the intention of a draftsman is not to enable a party to serve notice to terminate to an address the server knew was no longer correct.  Before concluding such an interpretation is correct do take a step back and ask the question whether logically this can be right.
  • If faced with an ambiguous service clause why take the chance on what the draftsman meant?  To quote Robert de Niro’s character in the film Ronin, “whenever there is any doubt, there is no doubt”.  While Robert de Niro wasn’t concerned with serving notices the point here is a simple one – eliminate the risk that service may be invalid or challenged.  The simplest way of achieving this is to serve at as many addresses as practical.
  • The consequence of the landlord’s error in this case was a liability in damages for unlawfully dispossessing the tenant of its land and the costs of the proceedings (given the case went to a trial held over 3 days followed by a full hearing in the Court of Appeal at which both sides were represented by a QC those costs will inevitably have been eye watering). 
  • There will of course be cases where the server of a notice tries to be cute to avoid (for example) a counter notice being served and so looks to serve at an address least likely to elicit a response.  There is nothing wrong with that but before identifying such an address it is important to take a step back to ensure that the address for service is consistent with the relevant contractual and/or statutory framework. 
  • If, following the stocktake, a decision is made not to plaster a notice to as many addresses as possible, do ensure that decision is made in full knowledge of the consequences of getting the address wrong, whether that be exposure to costs, damages and/or litigation risk.  Having identified the risks, ask whether they outweigh the benefit.  It will be the exception rather than the rule that the benefits are outweighed by the risks.

The Supreme Court tackles the National Planning Policy Framework
19 May, 2017

In the conjoined cases of Suffolk Coastal District Council v Hopkins Homes Ltd and Richborough Estates Partnership LLP v Cheshire East Borough Council [2017] UKSC 37, the Supreme Court was asked to clarify the interpretation of the phrase “relevant policies for the supply of housing” contained in paragraph 49 of the National Planning Policy Framework 2012 (“the NPPF”). This phrasing is important as it determines which local policies are out of date if a local authority cannot demonstrate a 5-year supply of deliverable housing sites, and therefore are not to be considered when determining a planning application.

 

The Court of Appeal gave this term a wide interpretation, with the effect that relevant policies for the supply of housing are not only policies dealing with the positive provision of housing but policies which restrict where housing may be provided. For example, under the Court of Appeal’s interpretation a policy restricting residential development which impacts the character of a historic landscape or garden would be a “relevant policy for the supply of housing”.

 

The Supreme Court disagreed with this interpretation and instead applied a narrow interpretation stating that there is no reason to treat policies of the development plan which serve a different purpose than positively planning for the supply of housing as out-of-date. Nevertheless, the Supreme Court said that this does not matter as the shortfall in the five-year housing supply will be sufficient to trigger paragraph 14 of the NPPF and the presumption in favour of sustainable development. The Court said that it is then up to the decision-maker as to what weight to give other policies such as policies on Areas of Outstanding Natural Beauty or Green Belt, which are specific policies in the NPPF that may lead to a refusal of an application if they indicate development should be restricted.

 

The Court seems to be guiding authorities that they should not be interfering with the presumption in favour of sustainable development, but appears to be allowing them to do so if they wish, by virtue of excluding restrictive policies from paragraph 49.

As well as providing the Court’s interpretation of paragraph 49, it also used the case as an opportunity to comment on the operation of the NPPF in general. The Court commented that it is a shame that so much case law exists regarding the interpretation of the NPPF, when its original aim was to simplify policy and enable a lay-person to understand planning.

 

The result of this judgment seems to be that the importance of whether a policy is a relevant policy for the supply of housing and be judged to be out-of-date is no more and instead the balancing act of whether specific policies restricting development outweigh the presumption in favour of sustainable development becomes more important.

 

The judgment seems to give local authorities more firepower to exercise their discretion as to whether to refuse permission for a site despite not having a five-year supply of housing, due to policies such as green belt, AONB, green gaps, etc. being applied considerable weight to rebut the presumption in favour of sustainable development. This may lead in more refusals by local authorities and more developers taking their application to appeal in the hope of obtaining a more favourable interpretation by a planning inspector.


Law snippets
12 May, 2017

Below is a round up of what we think are some interesting headline issues arising out of recent cases (2016/17) and pending new legislation/regulations affecting the real estate sector:

 

  1. If you let property (residential or commercial) then 1 April 2018 should be in your diary and an action plan in place now to assess if any works need to be carried out by you, as landlord, to ensure your properties meet or exceed the new minimum energy efficiency rating (the minimum rating being E) to be imposed under new regulations.  Failure to secure, at the very least, the minimum E rating will mean that on or after 1 April 2018 you will not be able to grant a new lease of your property (including lease renewals) unless an exemption applies without risking a fine being imposed by the local authority.  Leases in existence now and which are not due to end until after 1 April 2018 are not affected – for now.  However, residential property which is already let cannot go beyond 1 April 2020 without the minimum rating having been achieved; 1 April 2023 is the date for commercial property already let under existing leases.  Energy Performance Certificates (EPCs) which state the energy rating are valid for 10 years and should be checked to see if they will need to be renewed soon and the likelihood of improvement works being required.  Also, any current energy rating may change during the 10 year period of validity of an EPC if, for example, alterations have been carried out which have adversely affected the building’s energy efficiency.  There is some debate amongst lawyers and other professionals about perceived shortcomings of these new regulations, but in any event we would suggest professional advice be sought at an early stage to avoid last minute issues arising next year which then hold up letting deals.
  2. Side letters to leases are often used by landlords as a convenient way to grant concessions to tenants which relax a tenant’s lease obligations without including the concessions within the body of the lease itself.  This is because concessions may be granted to a tenant for only a short period and/or are intended to benefit only a particular tenant.  Examples of concessions are monthly rents rather than quarterly rents or a plate glass insurance waiver.  Side letters usually state that concessions are to fall away when they expire or earlier if there is a breach of a condition subject to which the concessions are granted.  So, at the relevant time, the concessions are supposed to end leaving the lease (which itself makes no mention of the concessions) to continue as if the concessions had never existed.  Not any more.  As a result of a case decided in March 2017, it is now possible for a landlord to be stuck with a concession granted to a tenant for longer than the landlord had bargained for.  The case concerned a rent concession granted by way of a side letter to a tenant who had breached the conditions contained in the side letter.  On the face of it, and in accordance with the express terms of the side letter, the landlord was entitled to end the concession with retrospective effect.  According to the court, on the facts of that case the consequence of a tenant’s breach (termination of the concession with retrospective effect) was draconian and disproportionate to the breach itself.  On that basis the court decided that the termination provisions in the side letter were unenforceable (as a penalty) and that the landlord was therefore stuck with the concession.  Careful drafting of side letters is now more important than ever to try to ensure that this issue does not affect you.
  3. Knotweed (aka Fallopia japonica), if present on your land, must be controlled before it encroaches on another’s land otherwise you risk being sued by a neighbour for damages.  Those damages may be for the cost of surveys and treatment programmes carried out by the neighbours, any diminution in the value of their properties after treatment has been carried out and general damages for loss of amenity and interference with quiet enjoyment.  Landowners need to know their sites.
  4. If you are planning to develop a site, make sure you obtain a right to use and reproduce all plans, drawings etc for which planning consent is to be or has been granted.  Those plans will be protected by the Copyright Act 1988 and the owner of the copyright may take action against you if it has not consented to its plans being used or copied by you.  If such a claim is successful, it may result in damages and/or an injunction preventing use of the plans and could mean a fresh planning permission must be sought.
  5. Recent cases have highlighted the importance of complying with statutory duties on sales of land whether the sales are effected by local authorities or charity trustees.  In the case of a local authority, s123 of the Local Government Act 1972 requires the authority to obtain best value on sale.  The same duty applies to charity trustees under the Charities Act 2011.  These duties potentially offer to disgruntled third parties an opportunity to challenge a sale.  If successful, a challenge may result in a transaction being unravelled (although some protection is afforded to buyers under both pieces of legislation) and/or, in the case of charity trustees, regulatory action being taken against the trustees.
  6. A recent case has demonstrated that a transaction clause intended to limit a trustee’s liability to the extent of the trust’s net assets must specifically include reference to any pre-contract representations made by or on behalf of a trustee during the transaction negotiations.  If it does not do so then a trustee’s personal liability may not be limited at all in relation to a claim for misrepresentation.  Unfortunately that was the result for the trustees concerned in a case decided in February 2017 regarding a claim for misrepresentation worth £1m+ in damages.
  7. One way to try to get rid of restrictive covenants affecting your land is to make an application to the Lands Chamber of the Upper Tribunal under s84 of the Law of Property Act 1925 to discharge or modify those covenants if (a) they are now obsolete or (b) they impede a reasonable use of the land or (c) all of the people who can enforce the covenants agree by their actions that the covenants are no longer relevant or (d) no injury would be caused by the covenants being either discharged or modified.  The procedural hurdles can be cumbersome since formal notice must be served on all those who would potentially be affected by the discharge/modification of the covenant and, if the application is successful, compensation may have to be paid.  As you would expect, such cases are decided on their particular facts.  Recent examples follow.  In March 2017, an applicant failed to persuade the court that it should discharge a covenant affecting its holiday bungalow because the court’s view was that if it did discharge it then that would be “the thin end of the wedge” leading to a change in the character of the surrounding development.  The covenant in question (which reflected a planning condition to which the bungalow was also subject) prevented occupation of the bungalow during certain weeks of the year and other than as holiday accommodation.  Conversely, in 2013 it was decided that a covenant preventing land from being used other than for agricultural use/riding school/livery purposes could be discharged allowing the land to be developed for 4 new houses.  The reason given for that decision was that the court had not been persuaded by the objector (who was itself a housebuilder) that the covenant secured any “practical benefits of substantial value or advantage” to the objector.
  8. Group company reorganisations, for example, might at one point have included leases being assigned from tenant to guarantor, but not any more.  In 2016, the court found that such an assignment of mainly post 1 January 1996 leases was void.  The decision has been widely criticised, but remains law.  An appeal due to take place in May 2017, which may well have reversed the decision, will not now be heard as the parties settled out of court.  Where such assignments have already taken place, we would recommend that the situation be reviewed and regularised going forward.

Fairness … is to be achieved by the avoidance of double recovery
5 May, 2017

On 4 April 2017 the Court of Appeal heard a freehold owner’s appeal from the Upper Tribunal regarding double recovery of a service charge (Sheffield City Council v Hazel St Clare Oliver).  This case will be interesting for freeholders, landlords and long leaseholders because the court discussed when a cost will be incurred by the landlord and why service charges should be off-set by funding or contributions received from third parties.  Many councils and public housing bodies receive Government funding towards costs of refurbishment and improvement works.  In this case, the Decent Homes Programme and the Community Energy Saving Programme (“the CESP”) provided nearly £3million towards the refurbishment of several blocks of flats.

 

Ms Oliver lived in a block of flats owned by Sheffield City Council (“the Council”) on an estate in Sheffield.  The estate consisted of around 1000 flats, 77 of which were let on long leases.  Ms Oliver became a long leaseholder after purchasing a 125 year lease pursuant to section 129 of the Housing Act 1985.

 

Under Ms Oliver’s lease, she was required to pay, from time to time as part of the service charge, a reasonable part of the costs and expenses incurred by the Council in carrying out repairs and improvements to the structure and exterior of her flat and the block her flat was located in.

 

In June 2011 the Council undertook a large scale refurbishment of the estate, which included repair and improvement works.  The works completed in August 2013 costing over £11million.  Under the service charge provisions, the Council sought to recover £615,323.64 from the long leaseholders.

 

The Council sought to recover £9,378.72 from Ms Oliver.  This amount included the exterior cladding, a contribution towards the costs of the work to the block, a contribution to the costs of work for the super-block in which the block was located as well as a small admin fee.  The Council did not charge Ms Oliver in respect of replacing her boiler and thermostatic radiator valves.  The CESP granted £2,210.41 for the work done specifically to Ms Oliver’s property.  In addition to this, there was a ‘whole house bonus’ for the works carried out, meaning an uplift of 100% to the grant.

 

Ms Oliver applied to the Leasehold Valuation Tribunal for the Northern Rent Assessment Panel (“the LVT”) under a more general challenge to the recoverability of this service charge and whether it was reasonable.  Ms Oliver failed on the main issue of recoverability.  Appealing this decision to the Upper Tribunal, Ms Oliver failed on this point again; however, the Upper Tribunal held that prohibition of double recovery was necessary to interpret the terms of the lease.  Ms Oliver was awarded a significant reduction to her service charge.  Further, the Upper Tribunal held that costs in relation to the works were not incurred if they were subject to CESP funding.

 

The Upper Tribunal held that Ms Oliver was entitled to set off her service charge by the monies received by the Council from third parties in relation to her flat.  In regard to the ‘whole house bonus’ it was held that Ms Oliver could offset her service charge with 50% of this benefit because it applied to works which she paid for and also works which the Council did not charge for.  If the Council had charged for all the works to her flat, it is likely that Ms Oliver would have been entitled to offset her service charge with the entire bonus.

 

The Council appealed to the Court of Appeal.  The main issue in this appeal was whether a Council was prohibited from double recovery of a service charge.

 

The Court of Appeal dismissed the appeal.  The appellant argued that in the absence of a clause in the lease prohibiting double recovery, it should be permitted.  Lord Justice Briggs drew comparisons to recovering insurance monies, enforcing guarantees or the award of damages.  It was held that it would be unfair, under the lease, to allow double recovery of the service charge.  In addition, it was found that double recovery was prohibited “upon the simple basis that the Lease would otherwise lack common sense”.

 

In regard to the meaning of ‘incurred’, the Court of Appeal held that the Upper Tribunal was incorrect to use interpretation of this word under the lease to avoid double recovery.  Instead, the court sought to rely on the fair proportion due under the lease and that this must give credit to the CESP funding received in relation to Ms Oliver’s flat.  Lord Justice Briggs held:  “Fairness in this context is to be achieved by the avoidance of double recovery.”

 

When considering the fair proportion of Ms Oliver’s service charge, the Court of Appeal would have used a different calculation than simply reducing the benefit of the ‘whole home bonus’ by 50%.  However, it did not depart from the decision of the Upper Tribunal because their calculation would not produce a different monetary outcome.

 

This decision is unlikely to be welcomed by councils and public housing bodies.  Frequently left to cover substantial refurbishment and improvement works, double recovery helps fund irrecoverable costs because many flats may be subject to social housing tenants.  Double recovery of service charges is unlikely to be permitted under most leases, leaving large sums spent on works to be recovered elsewhere.


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