Real Estate Matters – March 2015
Print newsletter19/03/2015

Back to the Future: revisiting “Right to Buy”
As any child of the 80s will know, Back to the Future was a box […]
As any child of the 80s will know, Back to the Future was a box office smash hit. Another 80s smash hit, for the Conservative party seeking working class votes at least, was the Right to Buy scheme under which council tenants were able to buy their home, and get on the property ladder, at a significant discount. The scheme was hugely popular with council tenants, but has been blamed since for significantly depleting social housing stock. In a ‘Back to the Future’-like twist in time, the Tories are now looking to extend the Right to Buy scheme to housing association tenants, just as their election campaign gathers pace.
Right to Buy, which offers discounts of up to £77,000 across England (£102,700 in London), is currently only available to council tenants (or most former council tenants where the council’s housing stock has been transferred), with the majority of current housing association tenants only able to participate in a much more limited scheme [1]. If the proposal to extend Right to Buy to Housing Associations goes ahead, legislation will be required as Housing Associations are often also charitable bodies, which are legally barred from selling assets at below market value. The scheme could, however, mean that over 2 million Housing Association tenants would become eligible to buy their home.
While that might be good news for the individual tenants involved, and while supporters suggest that income derived would be reinvested in social housing and building much-needed new homes, critics argue that the proposal would have to be backed by significant public funds and would actually just further deplete social housing stock.
Karl will continue to review and report if and when these housing proposals take effect.
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[1] Right to Acquire: where the tenant has lived in the HA property for at least 5 years; the property was built or acquired by the HA since 1997; and with an available discount of up to just £16,000.

Countryside Stewardship: Rural Development Programme
What is Countryside Stewardship? The existing Environmental Stewardship and English Woodland Grant schemes are being […]
What is Countryside Stewardship?
The existing Environmental Stewardship and English Woodland Grant schemes are being replaced by Countryside Stewardship as the environmental land management scheme under the RDP for England. The scheme allows farmers and land managers to voluntarily apply for grants and funding used to protect the environment by, for example, increasing biodiversity, improving water quality or converting to organic farming.
DEFRA will determine various environmental priorities for different parts of England and applicants for the grants must be able to show that they will use the funds to meet those priorities. A list of options will be available to applicants with standardised grant amounts.
There are 3 main types of Countryside Stewardship agreements and only one agreement may be entered into per holding:
Higher Tier Agreements
These relate to specific sites requiring the highest levels of environmental management, such as Sites of Special Scientific Interest (SSSIs). The agreements will generally be for five years but could last up to 10 or 20 years.
Mid Tier Agreements
These relate to a specific area and may be submitted by a group application from multiple land owners. Agreements will be for 5 years.
Lower Tier
Various smaller grants are available that are not linked to a multi-year agreement. These include:
- Facilitation funding available to organisations and individuals assisting with co-ordinating farmers or land managers to make area agreements encompassing a number of holdings. The area must usually be at least 2,000 hectares and include at least 4 adjoining holdings.
- Capital grants for protecting the environment, for example:
– up to £5000 for restoration of boundary features, such as stone walls and hedgerows
– up to £10,000 for improving water quality and water management – applications can be made by farmers and land managers
– improving and protecting areas of woodland – leaseholders and tenants may apply with the consent of the landowner
– protecting pollination and farm wildlife
Applying for Countryside Stewardship
The application window for many of the smaller and lower tier grants has already opened and some of these close as early as April 2015.
DEFRA intends to start the applications for mid and higher tier agreements in July 2015. All new multi-year agreements will start on 1 January in each year, the first new agreements will commence on 1 January 2016.
There is a strict timeframe for applications and if the deadline is missed applications will not be accepted until the following year.
Who will manage the schemes?
Natural England, the Rural Payments Agency and the Forestry Commission will be responsible for the running of the Countryside Stewardship schemes.

Improving the use of planning conditions
Following the ‘Technical Consultation on Planning’ (the Technical Consultation) held by the Department for Communities […]
Following the ‘Technical Consultation on Planning’ (the Technical Consultation) held by the Department for Communities and Local Government (DCLG) between 31 July and 29 September 2014, the Government has outlined further changes that will take effect.
Background
The Report, entitled ‘Improving the use of planning conditions’ (March 2015), is the latest response issued following the Technical Consultation. In November 2014, DCLG announced plans to carry forward a ‘deemed discharge procedure’ for planning conditions. However, the most recent publication relates to the Technical Consultation’s proposals to:
- reduce the time limit for returning the fee on an application to confirm compliance with conditions;
- require sharing of draft conditions with applicants for major development prior to permission being granted; and
- require local planning authorities (LPAs) to justify the use of pre-commencement conditions.
It is hoped that the package of measures will address unnecessary delays in the delivery of developments, particularly the provision of new homes. It is felt hold-ups currently arise both due to (1) LPAs’ tendency to impose too many conditions in the initial permission-stage and (2) delays in clearance of conditions.
Changes to Planning Conditions
Fee refund:
- The deadline after which a party that has applied for confirmation of compliance with planning conditions becomes entitled to a fee refund is changing to eight weeks. This is a reduction from the current 12 weeks.
- This applies if the applicant has not received notification from the LPA of the LPA’s decision within the time-frame. The applicant and the LPA can agree an alternative deadline in writing.
- A change will be made to secondary legislation at the earliest opportunity, but only after the ‘deemed discharge’ process is in place, so the two elements can operate together.
Sharing of draft conditions with applicants
- DCLG are not implementing the requirement for LPAs to share a draft of proposed conditions with the applicant before a decision is made on major planning applications.
- It has been decided this would reduce flexibility and potentially lengthen decision-making, even though there was broad support for the proposal.
- However the good example set by many LPAs that already share draft conditions is encouraged, with the hope that other LPAs follow suit.
- Further work is to be undertaken to decide how sharing of planning conditions can be facilitated and work effectively.
Pre-commencement conditions
- LPAs will have to justify the use of pre-commencement conditions.
- So for any condition that requires action before on-site development work begins, the LPA must give written justification explaining why the matter has to be addressed pre-development.
- This is in addition to the existing statutory requirement to justify the imposition of all conditions.
- Consideration will be given as to whether this measure should apply more broadly, so with justification being required for any condition where steps must be carried out before development proceeds.
Changes to Statutory Consultee Arrangements
In December 2014, DCLG launched a separate consultation considering statutory consultee arrangements for planning applications (the Consultee Consultation). Some changes have already been implemented which impact on third party consultees’ role in the planning process. However at the same time as its announcement on planning conditions, the Government has responded to the Consultee Consultation.
- The Lead Local Flood Authority (the LLFA) is to be a statutory consultee for major development applications with drainage and surface water implications.
Consideration will be given to further expansion of the LLFA’s consultation role in due course. - Alteration of the thresholds for involving the Environment Agency as a statutory consultee in certain planning applications. Applications for cemeteries and petrol stations are not included in this.
- LPAs must consult water and sewerage undertakers in relation to shale oil and gas development.
- No well consent can be issued to allow high-volume hydraulic fracturing unless the appropriate water and sewerage company has been consulted prior to planning permission being granted.

Land transactions in the competition spotlight
Background Since 6 April 2011, when a special exclusion order was revoked, all land agreements […]
Background
Since 6 April 2011, when a special exclusion order was revoked, all land agreements are subject to UK competition law. Broadly, Chapter I of the Competition Act 1998 prohibits agreements which have the object or effect of restricting competition. Agreements “relating to land” such as freehold transfers, leases, licences, agreement for leases and development agreements are covered by Chapter I [1].
Penalties
First, the consequences of breaching competition law are potentially serious, including fines of up to 10 per cent of group worldwide turnover, unenforceability of the infringing provisions (which may render the whole agreement void), disqualification of directors and the potential for third parties to bring private actions for damages. In the most serious cases (namely cartels), offenders may face criminal sanctions.
Guidance and exemption
In practical terms, companies can gain some comfort from guidance published in 2011 by the Office of Fair Trading, whose functions have now been assumed by the Competition and Markets Authority (CMA), that it expects only a minority of land agreements to contain infringing restrictions.
Even an agreement which has anti-competitive effects may still benefit from an exemption if it can be shown that the agreement also gives rise to efficiency gains that are passed on to consumers, and that the restriction is indispensible to the agreement and does not lead to the elimination of competition.
We are also seeing appetite from companies to use competition law to their advantage in the context of contractual disputes, where parties may use competition law to escape from unduly restrictive provisions.
The competition analysis
UK competition law operates on a “self assessment” basis, meaning that the parties must determine for themselves whether an agreement is lawful or in breach of the Chapter I prohibition. We have summarised the various stages of the analysis into four steps.
Step 1: Define the market
It is necessary to consider the scope of both the product market (including the market for the land itself and the market for which the land is used, e.g. retail sales of groceries) and the geographic market. In relation to land agreements, geographic markets can be very narrow given that competition usually takes place at a much localised level. It may be that the relevant geographic market constitutes the area of a single shopping centre. The narrower the geographic market, the more likely a restriction will impact on competition.
Step 2: Assess whether any impact on competition is appreciable
Only agreements which have an appreciable effect on competition will fall foul of competition law. The general rule of thumb is the greater the market share of the parties to the agreement, the greater the risk that any impact on competition is appreciable. Other factors indicating a potentially greater likelihood of an appreciable restriction arising include, for example: if sites suitable for use have unique or special qualities; if sites must be in proximity to a particular facility to enable a service to be provided (e.g., airport parking services); or if planning restrictions limit the availability of suitable land.
Step 3: Is there an adverse effect on competition?
The Chapter 1 prohibition prohibits agreements which prevent, restrict or distort competition. This involves a case-by-case analysis, but the CMA in its guidelines sets out some “red flags” for the types of restrictions in land agreements that are likely to be anti-competitive. These include: (a) agreements granting one party exclusivity; (b) agreements between competitors which restrict their ability to behave independently on the market (e.g. they share markets by territory); (c) where one or more parties have market power, meaning that they are not constrained by other parties in the market; and (d) raising barriers to entry into the market for new competitors.
Step 4: Does the exemption apply?
Even if an agreement does contain restrictions, it may still benefit from an exemption if it gives rise to efficiencies that are passed on to consumers and which are indispensible to achieving those efficiencies, e.g. a restriction on tenants of a shopping centre as to the type of store they can operate may benefit consumers by ensuring a good mix of retailers. Similarly, granting a department store exclusivity in a new shopping centre may be the only way to secure the anchor tenant and ensure the centre’s success, which in turn will benefit consumers by giving them greater choice. However, if this exclusivity provision is unlimited in duration, the agreement may fail the “indispensability” criteria – exclusivity for a few years after opening should normally be enough to ensure the commercial success of the shopping centre. (See also below regarding a case before the CJEU.)
The case law so far
The first reported case concerning the application of Chapter I of the Competition Act 1998 to retail units concerned a user clause in a lease [2]. The local authority landlord had a policy of employing a narrow user clause in order to ensure that a shopping parade maintained a diverse, complementary mix of retailers. When, on lease renewal, a newsagent sought to extend its user clause to become a convenience store, the Council proposed a user clause clarifying that the newsagent could not sell convenience goods, thereby preventing competition with a mini-supermarket on the parade. The judge ruled that the clause infringed competition law and could not benefit from the exemption, as there was no benefit to consumers flowing from the restriction.
This is just one case and possibly of limited application, not least as the Council conceded at trial that there had been a breach of the Chapter I prohibition. The decision is seemingly at odds with the CMA guidance, which is that landlords have a legitimate interest in manipulating user clauses to ensure a good tenant mix. Had the Council adduced evidence, e.g. a written policy, of how it did this, then, again, it is possible a different decision might have been reached. Use restrictions are more likely to be at risk of being found to be anti-competitive in rural areas or out of town retail parks, where there is less actual or potential competition, than there is in an urban centre.
Another, more significant case is in the pipeline. The Court of Justice of the European Union (CJEU) [3] has been asked to consider whether exclusivity agreements given to anchor tenants in a shopping centre automatically infringe competition law, irrespective of their effect. A finding that they do will necessitate a prompt review of its guidance by the UK’s Competition and Markets Authority and potentially re-negotiation of agreements by landlords and retailers.
This was not such an issue in the past but the applicability of competition law to land agreements is a topic we are going to see more of. We are aware of other cases reaching settlement or listed for trial. Landlords, developers and tenants must therefore understand how competition law can affect their agreements.
How Walker Morris can help
We can help you ensure that your land agreements comply with competition law. Your compliance programme might cover:
Training
Providing competition compliance training and guidance to personnel involved in negotiating and drafting agreements relating to land.
Compliance
Ensuring all agreements which restrict use of land are assessed for competition law compliance. Such assessments involve looking at the relevant markets for the economic activities affected by the restriction, the position of the parties on those markets and the overall effect of the restriction on competitors, potential competitors and customers.
Advice
Taking specialist competition law advice on any agreement where, because of the markets, parties or restrictions involved, there is a risk of the prohibitions being breached. Clear and persuasive evidence must be adduced if the parties want to prove that the agreement benefits from exemption.
If you require assistance or should like further information, please contact Trudy Feaster-Gee, Partner (Barrister) and Head of Competition (on +44 (0)113 2834542).
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[1] There is a second prohibition set out in Chapter II of the Competition Act 1998 which prohibits abuse of a dominant position and which may also apply in the context of a land agreement, e.g. an agreement for access to a port. This article does not deal with application of the Chapter II prohibition.
[2] Martin Retail Group Limited v Crawley Borough Council [2013] EW Misc 32 (CC)
[3] Case C-345/14, SIA ‘Maxima Latvija’ Ltd v Konkurences pardone

Limit on landlord’s remedies
Currently, where a tenant is in arrears of rent totalling £750 or more, a landlord […]
Currently, where a tenant is in arrears of rent totalling £750 or more, a landlord is entitled to serve a statutory demand for payment. This is a very effective weapon in a landlord’s arsenal of rent recovery remedies because it is efficient in terms of both time and cost and it is highly effective. Service of a statutory demand is the pre-cursor to a tenant’s insolvency in circumstances where an undisputed debt remains unpaid. Receipt of a statutory demand therefore prompts payment by tenants who are in funds, and it flushes out those who genuinely face financial difficulties. In the latter scenario, landlords can at least look to mitigate their losses in light of their tenant’s situation, rather than throwing good money after bad pursuing more expensive debt recovery options.
As from 1 October 2015, however, the threshold for service of a statutory demand will be increased to debts of £5,000 or more. Couple this with the recent abolition of the landlord’s option to distrain against goods for arrears of rent and it seems that landlords will be forced into incurring the time, cost and risk of pursuing court proceedings in many more instances than hitherto.
Concurrent changes within the court system, such as the frontloading of work and costs occasioned by the heightened case management regime imposed by the Jackson Reforms [1] and court fee increases in effect from 9 March 2015 mean that landlord will have to weigh their options more carefully than ever when it comes to dealing with defaulting tenants.
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[1] https://www.walkermorris.co.uk/jackson-real-estate-litigators

M&S v BNP Paribas: The long-running break-up continues…
Specialist Real Estate Litigator Martin McKeague has written previously on the M&S v BNP Paribas […]
Specialist Real Estate Litigator Martin McKeague has written previously on the M&S v BNP Paribas case, in which the Court of Appeal determined that a tenant that had exercised a lease break should not be refunded rent for the post-break period. Please click here to view the article. The Supreme Court has now given permission to appeal that decision. Martin will monitor and report again when the Supreme Court has heard this controversial but important case.

One size does not fit all
The letter of the lease is king. When it comes to the recovery of service […]
The letter of the lease is king. When it comes to the recovery of service charge, a fundamental point is that a tenant’s service charge liability does not arise at all unless and until the landlord has properly followed the procedure set out in the lease. This point is one which seems so obvious that you might think it goes without saying, but in fact it is one of which, in practice, landlords and managing agents easily and often fall foul.
In the recent case of Norwich City Council v Redford and another [1] the landlord (“the Council”) owned a city-wide portfolio of properties and, no doubt to achieve value for money by reason of economy of scale, had entered into a maintenance contract which covered the communal lighting in all of its residential flats – not just the flats within the particular estate in question (“the Estate”). The Council then apportioned and charged service charge to its tenants by reference to the relative rateable values of all of the properties covered by the lighting contract. One of the tenants of a flat on the Estate challenged its service charge on the basis that its lease required service charge liability to be calculated by reference to the Council’s expenditure on communal lighting “on the Estate”.
The Upper Tribunal (Lands Chamber) agreed, concluding that the service charge was not payable as it had not been calculated and demanded in accordance with specific requirements of the lease and, further, on the basis of information provided by the Council it was not even possible to calculate the true cost that should be payable by the tenant.
WM Comment
Landlords and their agents and advisors must have regard to, and strictly comply with, the particular provisions of all individual leases within their portfolio. Failure to do so could leave landlords out of pocket as they remain obliged under their service charge covenants to provide services but will be unable to recover costs where procedural failings mean tenants’ payment obligations do not arise. Similarly, agents and advisors could face negligence claims where landlords look to recoup their losses. In addition to lease awareness, landlords and agents should maintain separate accounts for all of their tenanted properties.
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[1] [2015] UKUT 30 (LC)

The Insurance Act 2015 – the risky business of commercial insurance contracts
The Insurance Act 2015 (the Act) received Royal Assent on 12 February 2015. Whilst the […]
The Insurance Act 2015 (the Act) received Royal Assent on 12 February 2015. Whilst the Act does not come into force until August 2016 it does introduce key changes to commercial insurance contracts, covering the duty of disclosure, warranties and the remedies that insurers have for fraudulent claims. The explanatory notes to the Insurance Bill which preceded the Act confirmed that its purposes was to update the statutory basis for commercial insurance contracts to bring it in line with best practice in the insurance market. The Act brings about changes in the following three areas:
- Disclosure and misrepresentation in non-consumer insurance contracts. The Act changes the duty on the insured and introduces a requirement of ‘fair presentation’ of the risk to be insured. It also provides and insurer with a number of proportionate remedies in the event of a breach of the insured’s duty.
- Insurance warranties and other terms. The Act does away with ‘basis of contract’ clauses (which converted information supplied to an insurer pre-contract into warranties). Under the Act, should a warranty be breached, the liability of the insurer is suspended rather than discharged so that if a breach is remedied then the insurance cover will be restored. It also provides that a breach of a warranty or similar term would not allow an insurer to avoid paying a claim if the insured can show that the breach was not relevant to the loss suffered.
- Insurers’ remedies for fraudulent claims. The Act sets out a number of remedies which would apply if a fraudulent claim was submitted by a policyholder.
The provisions of the Act are intended to provide a default position but parties to non-consumer insurance contracts will be able to contract out of the Act and instead put in place their own terms provided that certain transparency requirements, which ensure that the terms of a policy do not put an insured in a worse position that it would be under the Act, are met by the insurer
‘Fair presentation’ of risk
Under the law as it stands until the Act comes into force, a party requiring insurance has a duty to disclose every material circumstances known (or which ought to be known) to the insurer. This will be replaced by a duty to make a ‘fair presentation’ of the risk to the insurer. This duty will require an insured to either disclose all material circumstances of which it is, or ought to be, aware or, in the alternative, to give to the insurer enough information to put a prudent insurer on notice that further enquiries should be raised. Disclosures will need to be made in a way that would be reasonably clear to a prudent insurer and representations regarding material facts will need to be substantially correct.
Where the insured is not an individual the level of knowledge implied will be that of members of the senior management team or whoever is responsible for its insurance.
A breach of the duty to make a fair presentation where the misrepresentation or failure to disclose is wilful or reckless will allow the insured to avoid the contract and retain the premium. In cases where the non-disclosure or misrepresentation is not deliberate or reckless then a schedule of proportionate remedies will apply. The remedy will, in these cases, depend on what action the insurer would have taken if a fair presentation of the risk had actually be made (i.e. if the insurer can prove that it would not have entered into the contract then it will be able to avoid the contract and refuse to pay any claim but it will have to, in this case, return the premium to the insured). It is thought by commentators that, whilst insurers will clearly try and use the new remedies to reduce claims payments, they will actually result in more payments being made and lead to a downturn in the number of claims resulting in litigation.
Warranties
The Act amends the effect of warranties in insurance contracts in the following ways:
- ‘Basis of contract’ clauses, which, as mentioned above, convert pre-contract information it warranties are to be abolished for non-consumer policyholders (thereby bringing the law for non-consumer insureds into line with the existing law for consumer insureds under the Consumer Insurance (Disclosure and Representations) Act 2012.
- Any breach of a warranty by an insured will suspend any liability of the insurer as opposed to discharging it. If the breach in question can be remedied then the insurer will be liable for claims that arise after the breach (and will still be liable for any loss before the breach as is currently the case).
- There must be a causal link between the breach and the loss (e.g. if a policy contains a warranty that new locks must be fitted in doors in a property but the insured fails to fix a subsequent fault with one of the locks, a claim for losses arising from a break in at the property would fail due to the breach of warranty but a claim for fire damage at the property would be successful. It should be noted though that there does not need to be such a causal link when the warranty applies to the whole of the policy.
Fraudulent claims
As mentioned above, a policy can only be avoided by an insurer if any non-disclosure or misrepresentation is deliberate or reckless, in other circumstances proportionate remedies will apply. For example if, but for the non-disclosure the insurer might have charged an increased premium for the policy then it can reduce the payment of the claim by a proportionate amount.
Third Party (Rights Against Insurers) Act 2010
The Act also makes amendments to the Third Party (Rights Against Insurers) Act 2010 (the 2010 Act) which permits that act to be bought into force. The 2010 Act replaces the previous Third Party (Rights Against Insurers) Act 1930 and implementation will simplify the position of a creditor of either a company or individual which is the subject of formal insolvency proceedings where that company or individual has insured against the creditor’s claim. The 2010 Act will transfer to the creditor the rights of the insolvent party to receive the proceeds of an insurance policy and will allow a person with a claim against an insolvent person to proceed against the insurer directly without having to first establish the liability of that person.
WM Comment
Whilst the provisions of the Act will not apply until August next year and as such no immediate action is required, once in force the Act will require that all pertinent information is presented to an insurer at the outset. It is likely that the Act will increase the due diligence burden on businesses when entering into insurance policies as they will need to search for information available to them to allow it to be presented to an insurer prior to the policy being put in place. A failure to do this could permit the insurer to use the provisions of the Act to avoid a policy if a claim is made at a later date.