Real estate

Wild Duck Ltd v Smith (2018): can a landlord step in to carry out outstanding works following a developer’s liquidation?
4 September, 2018

On 27 June 2018, the Court of Appeal considered an appeal by a management company against a High Court decision in relation to outstanding works to the common parts of a development of holiday homes, following a developer’s liquidation.  Please read on for a summary of the judgment together with our comments on its potential significance.

Background to the case

The claimant (“Wild Duck”) purchased 5 leases for plots of land which were to be developed into holiday homes.  The defendants were the lessors under the lease and their late father entered into a development agreement to build the homes on the site, which provided for the incorporation of a management company responsible for the common parts of the site.  The developer went into voluntary liquidation during which time various parts of the development remained unfinished, with the management company dissolved shortly after.  Each lease provided that in such circumstances the management company would be liable to complete the outstanding works but, if the management company failed to perform any of its obligations, the lessors could perform them instead and recover the cost from the management company.  The lessees of the completed units sought to deal with the day-to-day maintenance and completion of the outstanding works by becoming shareholders of the management company.  The defendants invoked a clause within the leases to carry out the works themselves and recover the costs from the tenants.

The High Court decision

Wild Duck initially sought damages for breach of contract and in tort arising out of the leases, submitting the defendants were in breach of an implied term within the leases not to prevent the management company from carrying out its obligations.  The claim was dismissed, although the judge accepted that there was an implied term in the lease that the defendants would not prevent the management company from performing its obligations.  However, there was no implied term that the defendants had a duty to co-operate with the management company.  Such a term was not necessary to ensure that the lease had commercial or practical coherence.  The judge also held that there was still substantial further process to be made (in the absence of an appointment of a contractor) and the defendants were therefore entitled to conclude that the management company’s failure to perform allowed them to undertake the works themselves.

The appeal

The management company appealed against the High Court decision, claiming that there had been no failure to perform and that the defendants had acted outside the scope of the clause within the leases, by  deferring certain works and requiring payment upfront and declining to connect tenants to the new sewage treatment system until such payment was made.  The Court of Appeal found for the defendants, dismissing the appeal.  Little progress had been made in relation to the outstanding works following the developer’s liquidation.  By appointing a surveyor to prepare a schedule of works and oversee a tender process the management company were, at most, preparing to carry out their obligations; they were not performing them.

The court  also  found that, although the defendants were not strictly entitled to attach conditions to the works being carried out (particularly in relation to the demand for payment with a certain time), the defendants were still acting within the scope of the lease provisions.

Comment

The Court of Appeal judgment illustrates the chaos that can be created where a developer becomes insolvent during construction of a development.  Typically, when a property is sold off plan, an agreement will be entered into with the developer containing build obligations with completion to take place a number of days following practical completion.  However, the Wild Duck case differed as the leases of the units were granted before the construction of the development began.  This meant that a significant cost of carrying out the outstanding works would fall to the tenants of the completed units, impacting the future marketability of the tenants’ property.  The drafting of the term “practical completion” is of the upmost importance as, depending on the wording, this may mean that the landlord/developer can call for completion before the common parts in the development are complete.  It is advised that adequate due diligence checks are carried out on the developers before instruction and that there should be regular dialogue between the tenants and the developer throughout the project.


No “weed-ling” out of this one
3 August, 2018

Last year I wrote about a case where individuals whose land had been encroached upon by the invasive species known as Japanese Knotweed (“JKW”) were granted damages (www.cripps.co.uk/real-estate/knot-my-problem). This was on the basis there had been a diminution in value of the properties, although there had not yet been any physical damage.

On 3 July 2018, the Court of Appeal upheld the first instance decision, but on different grounds (Network Rail Infrastructure Ltd v (1) Williams (2) Waistell [2018] EWCA Civ 1514).

Protection of the use and enjoyment of land

The Court of Appeal held that the first instance judge had been wrong in principle to find that the presence of JKW was an actionable nuisance on the basis it diminished the market value of the properties.  It found the purpose of the tort of nuisance is to protect the use and enjoyment of land and the first instance decision extended it to cover pure economic loss, which would have represented a “radical reformulation of the purpose and scope of the tort”.

The Court still found that the claimants were entitled to damages but this time on the basis that JKW grows quickly and spreads through underground roots so it posed a risk of future physical damage and its presence would diminish the ability of the landowners to enjoy the amenity and utility of the land.  The claimants would have an increased difficulty and cost in developing the land (even though there was no evidence of any development here), which was an immediate burden and their use and enjoyment of land was affected. Coupled with National Rail’s knowledge of the presence and risk of JKW, there was an actionable nuisance.

The Court of Appeal then went a step further, stating that a claimant should be able to obtain a final mandatory injunction to compel treatment of JKW even where there has been no physical damage to the property. The presence of the roots alone was sufficient for this.

Impact of this decision

Permission to appeal was refused by the Court of Appeal but Network Rail can still petition the Supreme Court directly, so this may not be over yet.

In the meantime, this is an important ruling as potentially thousands of property owners will now have an actionable claim for nuisance, resulting in an award for damages and an injunction against neighbours that have knowledge of JKW originating on their land and fail to deal with it, even when no physical damage has been caused. 

For more information please get in touch with Louise Loveless at louise.loveless@cripps.co.uk.


Overvaluation of dilapidated properties: what should damages amount to?
30 July, 2018

Mr Moore and Ms Heguland wished to buy a flat in the port town of Bideford in North Devon, which they intended to let out.  They were purchasing with the benefit of a mortgage from Nat West.  They asked the bank to produce a home buyer’s report.  In error the bank failed to do this but proceeded to make a mortgage offer without it.  The absence of the report was not communicated to thepurchasers, who proceeded on the assumption that one had been commissioned and it was favourable.

Unfortunately for the purchasers the property turned out to be in anything but in good condition and needed significant works of repair to be carried out.  Being Grade II listed, the cost of the works were estimated to be £115,000, which was only £20,000 less than they had paid.  They sued the bank. 

The bank’s case on quantum was that the correct measure of damages was the difference in value between what a reasonable person would pay for the property in ignorance of the condition, and what that same reasonable person would pay for the property in actual condition (diminution in value).  The bank’s expert valuer contended that on this basis the claim was worth £15,000.

In the County Court the trial judge decided that the cost of works represented the right measure of damages and awarded £115,000.  The bank appealed the basis of assessment.  The result of the appeal was both good news and bad news for the bank. 

The good news was that on appeal the judge confirmed the correct method to assess loss in these cases was diminution in value.  The bad news for the bank was that the judge confirmed that diminution in value can be assessed with reference to the cost of works (i.e. that a prospective purchaser would reduce their bid by the cost of the works) and that having reviewed the transcript of the lower court’s decision it was apparent that the trial judge carried out a proper assessment of the competing valuation experts and preferred that of the purchasers.  There was nothing to say that the trial judge viewed diminution in value as less than £115,000.  As cost of works could form the basis of a diminution in value assessment there was no evidence on which to conclude that the judge’s assessment was incorrect.  The effect of this decision is that the value of the flat in actual condition was £20,000. 

It is important to stress that does not follow that in each and every case where a dilapidated property is overvalued in breach of contract or by negligence, the cost of putting the property into repair will be the right measure.  It is merely one of the ways in which the court can assess damages in an overvaluation case. 

 


A PropTech transaction
20 July, 2018

“Technology is a useful servant but a dangerous master.”

The property industry has, over the past 2 years, seen a massive uptake in embracing tech to make efficiencies.  Attitudes of the larger real estate operators are changing (as seen in a recent KPMG survey).

In light of this, we take a look at the latest innovations to sweep the property transaction now and in the not too distant future.

Blockchain

Blockchain is a digital database which records every step of a transaction chronologically, transparently and securely – sounds like a dream for a property transaction, right?

Experts believe we could get to the stage with blockchain in the UK where you would be able to digitally carve up a building and be able to sell a small interest in that building in seconds, with full transparency.

In March the UK had its first residential sale using blockchain on the Clicktopurchase platform.  Each stage of the transaction was recorded on the blockchain but currently, the purchase must still be registered manually at HM Land Registry on completion.  Although the uptake of blockchain in the UK property industry has been slow, it has been picking up overseas.  In 2017 the Dubai Land Department announced it would become the world’s first government entity to use blockchain for all real estate transactions.  Sweden and Georgia are already moving their house registries on blockchain.

Payment

Bitcoin is a digital currency that has no central bank, managed on the blockchain.  Last year saw the first homes in the UK sold using Bitcoin.  One of the first buyers actually intended to rent the property out using Bitcoin.  HM Land Registry even offers the option of recording the purchase price in Bitcoin but this is unlikely to be taken up due to the complications in calculating capital gains tax.  However, concerns have been raised over the use of Bitcoin for property transactions due to its volatility in value.

Due diligence

Blockchain tailors itself well to speed up due diligence on transactions.  An example of this is Cloudscraper.  “Cloudscraper is not an advice system“, says chief financial officer Matt Webster.  “It’s a system that allows buyers, sellers and lenders to be able to connect and share information and put deal teams together.”

Cloudscraper users can upload information about properties in their portfolio that they want to sell and share that information with other users of the platform.

Searches

HM Land Registry is building the foundations for a national Local Land Charges Register and will be working with local authorities to migrate their records to a centralised digital register.

Providers such as Search Acumen currently offer an early warning system for potential risks to a property at the outset of a deal by offering access to data that previously required long and costly local authority searches.

Mortgages

This year the UK’s first ever digital mortgage was signed.  HM Land Registry claim it is “building for a future without the need for a witness to watch as the homeowner applies an ink signature to a paper mortgage deed, saving time and providing a more secure service to homeowners, lenders and conveyancers.”

With UK homebuyers being the world’s most digitally active house hunters with 93% using online channels to research prospective properties, digital mortgages would likely be a welcomed addition.  The digital mortgage is part of HM Land Registry’s plan to become the world’s leading land registry.  Their leading innovation project at the moment is ‘Digital Street’, an ongoing research and development project set up to think about how technology can be used to revolutionise land registration and conveyancing.

Tech at Cripps

It seems we are not far off from a PropTech Transaction.  At Cripps, our innovation team regularly review new legal services technology with a view to identify technologies that might enable us to offer more efficient solutions to clients.  For example, we are currently reviewing artificially intelligent machine learning to find key information within legal contracts.  The machine learning enables clauses, documents, currencies, locations, governing laws to be automatically tagged for faster navigation of documents.


Ashley Pappin joins Cripps LLP construction disputes team
13 July, 2018
by: Cripps

We are delighted to announce the recruitment of Ashley Pappin as Senior Associate.  Ashley becomes the fourth member of the Cripps LLP construction disputes team.  Ashley joins us from Weightmans LLP in London, having previously worked at the London office of Herbert Smith LLP (now Herbert Smith Freehills), and the in-house legal department of Volkswagen AG in Wolfsburg, Germany.  Ashley’s career to date has concerned contentious construction matters, international arbitration and a variety of UK and international commercial disputes.  He has acted for a number of household name companies and high profile construction consortia.  Ashley joining us is an important step in the ongoing growth of our construction disputes practice and enables us to service the ever increasing demand for our contentious construction services. 


1 2 3 44