Real Estate Matters – Winter 2016
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Minimum Energy Efficiency Standards: what you need to know
From April 2018, a new legal standard for minimum energy efficiency will apply to rented […]
From April 2018, a new legal standard for minimum energy efficiency will apply to rented commercial buildings and in our article at the start of this year we discussed some of the background information surrounding this somewhat controversial new law and provide our initial thoughts on how leases could cater for these new requirements. Since then the industry has become much more aware of the changes that the legislation will impose and as such we thought, almost 12 months on, now would be a good time to revisit the topic and ascertain how it could affect you
What is the Minimum Energy Efficiency Standard (MEES)?
Research has revealed that 18% of commercial properties fall into the two lowest EPC bands (F and G), a fact which been identified by the Government as a threat to the UK meeting its carbon reduction targets for 2020 and 2050. Whilst Building Regulations prescribe minimum standards of energy efficiency for new buildings, improving the performance of existing buildings is seen as key in achieving the Government’s aims and thus the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 [1] (the Regulations) were enacted. The Regulations provide that, subject to certain exemptions, from 1 April 2018, landlords will be prevented from granting new tenancies, or renewing any existing tenancies, if the building in question has an EPC rating of less than E. After 1 April 2023, landlords may not continue to let any buildings that fall below the MEES.
Which buildings does the MEES apply to?
MEES do not apply to:
- Any building which is not required to have an EPC, for example, industrial sites, agricultural buildings with low demands for energy, workshops, temporary properties and holiday rentals;
- Any building with an EPC that is over 10 years old (or where there is no EPC;
- Buildings let on tenancies of over 99 years or less than 6 months (where such tenancy does not contain a right of renewal).
Determining whether a building is within the scope of the Regulations is therefore not always straightforward as not only does a landlord have to consider the Regulations but also a second set of regulations, the Energy Performance of Buildings (England and Wales) Regulations [2] (as amended) to determine whether an EPC is actually required for a building.
What exemptions are there?
The following exemptions apply to the prohibition on letting buildings with an EPC rating below the MEES:
- Third party consent – where consent from persons such as a superior landlord, tenant or the planning authorities has been refused or provided subject to conditions with which the landlord cannot reasonably comply;
- Devaluation – where an independent surveyor determines that the improvements required to improve the energy efficiency are likely to reduce the market value of the property in question by more than 5%; and
- The ‘Golden Rule’ – where an independent assessor determines that all energy efficiency improvements that have been made or that could be made would not pay for themselves through energy savings within seven years.
None of these exemptions last indefinitely and a landlord must therefore reconsider regularly whether any energy efficiency measures can be implemented to increase the energy efficiency rating, or whether the grounds for exemption still apply.
To qualify for an exemption a landlord must register the exemption that it is relying on in the PRS [3] exemptions register which is required to be kept by the Secretary of State.
Where a landlord purchases an investment property already subject to leases, or where a landlord is required to grant a lease as a result of either a statutory or contractual obligation, for example a renewal pursuant to the Landlord and Tenant Act 1954, the landlord will not be in immediate breach of the Regulations. Instead the landlord will have six months to comply or demonstrate that one of the exemptions apply (exemptions do not pass from one property owner to another).
What penalties are there for a failure to comply?
The Regulations will be enforced by local weights and measures authorities who will have powers to impose civil penalties. The penalties, which are set by reference to the rateable value of the property in question, are as follows:
- For renting a property for a period of less than 3 months in breach of the Regulations, the penalty will be equivalent to 10% of the property’s rateable value, subject to a minimum penalty of £5000 and a maximum of £50,000.
- For renting a property for a period in excess of 3 months in breach of the Regulations, the penalty doubles to 20% of the rateable value, subject to a minimum of £10,000 and a maximum of £150,000.
A failure to comply does not, however, affect the validity of the lease as between the landlord and tenant.
Practical impacts of the Regulations
Whilst as yet there is no settled industry practice as to what amendments will be required to lease to cater for the Regulations there are various points that parties may wish to consider including:
- Right of entry – the landlord may wish to specifically reserve a to enter onto the premises to carry out energy efficiency improvement works, if the tenant consents (and if the tenant doesn’t consent the landlord may be able to rely on the exemption referred to above);
- An obligation to do works – a landlord may wish to attempt to impose an additional tenant covenant, requiring them to carry out works required by the Regulations. On the other hand, a tenant may wish to specifically exclude from its repairing obligations any such works. To the extent that works constitute improvements rather than repair then it is unlikely that a tenant would be required to undertake them in any event. A well advised tenant may however wish to benchmark it’s repairing obligations as against a schedule of condition or insert a specific statement that it will not be responsible for energy efficiency improvements.
- Costs – the question as to who covers the costs of energy efficiency works will be key. It is arguable that the tenant will be the party who benefits from the improvements either through reduced energy bills or lower service charge contributions and the landlord may therefore want to impose an express obligation on the tenant to pay. A landlord may be able to recover such costs in the absence of such a provision via any service charge imposed provided the works can be construed as repair rather than improvement (and the landlord may wish therefore to check that the heads of recovery in the service charge provisions of its lease are drawn widely enough). In the alternative a tenant may wish to seek an explicit covenant on the part of the landlord not to look to recover the costs of any works required by the Regulations from the tenant;
- Alterations – the landlord may seek to prevent the tenant from undertaking alterations that would otherwise be permitted if those alterations would adversely affect the environmental performance of the demised premises. In circumstances where landlords are able to reasonably withhold consent to alterations such a provision may not be required as the concept of reasonableness is sufficiently wide to enable consent to be withheld if the alterations would have a detrimental effect or put the landlord in breach of its statutory obligations;
- Obtaining an EPC – the landlord may wish to prohibit the tenant from obtaining an EPC unless it must do so by law (for example on an assignment or underletting) in order to avoid the possibility that an EPC that the landlord already holds is replaced by an EPC with a rating below E;
- Yield up – an amendment to the yielding up provisions in the lease requiring the tenant to yield up with no lesser EPC rating than as at the date of the lease, or no lesser rating than E would clearly be beneficial to the landlord. A tenant on the other hand may wish to specifically exclude any obligation on it to do such works and prohibit the landlord from including such works in any schedule of dilapidations; and
- Break option – the landlord may wish to consider inserting a break option, permitting it to terminate the lease if to continue letting it would place it in breach of the Regulations.
What to do now
The Government has confirmed that it intends to issue detailed guidance on the application of the Regulations. That guidance has yet to be issued however and regulatory bodies such at the Law Society are awaiting the issue of the guidance before amending their standard form leases.
That isn’t to say however that parties should do nothing, landlords (and tenants) would be well advised to start preparing for the Regulations now by assessing their portfolios to ascertain whether properties are within the scope of the Regulations and whether any exemptions will apply, and understanding how lease terms, renewal dates, etc fit within the timetable for implementation of the Regulations as failing to take action now could lead to increased costs and limited options in the future.
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[1] SI 2015/962.
[2] SI 2012/3118 as most recently amended by the Energy Performance of Buildings (England and Wales) (Amendment) Regulations 2016 (SI 2016/284).
[3] Private rented sector.

The Building (Amendment) Regulations 2016 – building infrastructure for a better future?
Introduction The Building (Amendment) Regulations 2016 [1] (the Amendment Regulations), which came into force on […]
Introduction
The Building (Amendment) Regulations 2016 [1] (the Amendment Regulations), which came into force on 9 May 2016, transpose into our domestic law Article 8 of Directive 2014/61/EU [2] (the Directive). The Directive sets out measures to reduce the cost of installing high-speed electronic communications networks with the aim of reducing the future costs and obstacles to deployment of superfast broadband.
What do the Amendment Regulations do and when do they apply?
The Regulations introduce into Schedule 1 of the Building Regulations 2010 [3] a new Part R requiring that all new buildings (and those undergoing major renovation works) are equipped with the in-building infrastructure necessary to support superfast broadband connectivity [4].
The requirements of Part R only extend to the physical infrastructure required for the building, and not any infrastructure that may be placed within the curtilage of the site. With regard to major renovation works, Part R only applies to the extent that the existing in-building physical infrastructure is being renovated (either wholly or across a significant part).
Whilst the Amendment Regulations came into force on 9 May 2016 there is a transitional period in place meaning that compliance will only apply where a building regulations application is submitted after 31 December 2016.
Are there any exemptions?
The Amendment Regulations provide for exemptions to the requirements for compliance which include works to the following types of buildings:
- those under section 1 of the Planning (Listed Building and Conservations Areas) Act 1990 (the 1990 Act); and
- those in a conservation area designated in accordance with section 69 of the 1990 Act ;
- where compliance would unacceptable alter their character or appearance;
- those occupied by the Ministry of Defence, the armed forces of the Crown or otherwise occupied for purposes connected with national security; and
- those situated in isolated areas where the prospect of high-speed connections is considered too remote to justify equipping the building with the necessary infrastructure of access point.
There is also an exemption from compliance with Part R for works in cases where the cost of installing the necessary infrastructure would be disproportionate to the benefit gained. Whilst it might seem that this exemption could be of wide application, a circular from the Department for Communities and Local Government states that they anticipate that there will be very few instances where the exemption would be acceptable. A case by case assessment would need to be made by inspectors as to whether the costs that would be incurred in meeting the requirements are actually disproportionate to the benefit of enabling superfast broadband connections.
What are the penalties for non-compliance?
A failure to comply with the Part R requirements carries with it the same implications as any breach of the Building Regulations 2010. The local authority building control service can therefore serve an enforcement notice, apply for an injunction or prosecute in court where the Amendment Regulations have been contravened. A court prosecution could lead to an unlimited fine and an additional £50 per day for each day that the contravention continues after conviction.
Even in circumstances where enforcement action is not taken, a completion certificate will not be issued which could cause problems on a sale or letting albeit a regularisation certificate could be obtained.
Where can additional guidance be found?
The Government has issued additional guidance on the application of the Amendment Regulations in the form of Approved Document R. This provides practical guidance as to the types of infrastructure that are covered by the Amendment Regulations, diagrammatical examples and a useful glossary. Approved Document R can be accessed here.
WM comment
The Amendment Regulations could impose significant additional responsibilities and involve considerable expenditure for new developments and major renovations to existing buildings. As is often the case, the legislation itself provides very little guidance on the exact technical specifications of infrastructure that will be required to satisfy the Amendments Regulations though Approved Document R does go some way to filling in the missing detail. Should you require further advice on the Amendment Regulations from a legal perspective, please do not hesitate to contact us.
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[1] SI 2016/490 which came into force on 9 May 2016
[2] Dated 15 May 2014
[3] SI 2010/2214
[4] Part R does not however require an actual connection to superfast broadband.

Meaning of ‘conversion’ for permitted development
In a recent case, the High Court has considered the meaning of ‘convert’ for the […]
In a recent case, the High Court has considered the meaning of ‘convert’ for the changing of an agricultural building to a dwellinghouse under permitted development (PD) rights. The outcome in Hibbitt and another v Secretary of State for Communities and Local Government [2016] EWHC 2853 (Admin) reinforces that building operations undertaken under Class Q(b) PD rights should fall short of rebuilding and not involve construction of new structural elements.
Background
On 7 December 2015, Rushcliffe Borough Council (the Council) as local planning authority (LPA) refused a prior approval application submitted by Mr and Mrs Hibbitt (the Claimants) to convert a barn to a residential dwelling. The barn was a modern, steel-framed structure, with three open sides and a concrete-slab floor. No demolition was proposed. While the monopitch roof and existing foundations were to be retained, infill panels were required to construct four external walls and a ceiling within the existing frame.
Planning permission is usually required to carry out development, including the material change of use of buildings or land. However, under the Town & Country Planning (General Permitted Development) (England) Order 2015 (GPDO 2015), certain changes of use are regarded as PD and have deemed planning consent. Sometimes the PD rights are subject to certain conditions being met, which differ according to the type of development proposed.
Class Q of the GDPO 2015 (Part 3, Schedule 2) permits (provided the criteria and conditions in the GPDO 2015 are met):
- a change of use of an agricultural building (and any land in its curtilage) to a dwellinghouse; and
- any building operations reasonably necessary to convert that building to a dwellinghouse.
Included in those conditions is the requirement for the party wishing to utilise the Class Q PD right to apply to the LPA for a determination as to whether the LPA’s prior approval is required at a secondary stage on certain matters relating to (1) the site and (2) the proposed development. The Claimants here had submitted a prior approval application.
Why did the Council refuse the application?
The Council refused prior approval on the basis that the proposal was not PD. In doing so, it seemed to have regard to the national Planning Practice Guidance (PPG). PPG states:
- the Class Q PD right “assumes that the agricultural building is capable of functioning as a dwelling”;
- “it is not the intention of the permitted development right to include the construction of new structural elements for the building”; and
- to be regarded as PD, the existing building’s structure must be strong enough to take any load from the external works needed for the proposals.
What did the Inspector decide on appeal?
The Claimants appealed against the Council’s refusal, but their appeal was subsequently dismissed by the Planning Inspectorate. The Inspector felt substantial building works were required before the agricultural building could function as a dwellinghouse. If any development was to take advantage of the Class Q PD rights, the works proposed (in nature and extent) had to be a ‘conversion’ and so fall short of rebuilding. The Inspector stated that the works to the barn in this case went “well beyond what could reasonably be described as conversion”. This was particularly so with the need to construct all four exterior walls. Following the appeal decision, the Claimants took the matter to the High Court.
What did the High Court rule?
Mr Justice Green found the Inspector’s appeal decision sound and dismissed the Claimants’ appeal. In doing so, the following points were made:
- The GPDO 2015 does not define ‘conversion’, but no definition is required. The GPDO 2015 is largely for a professional audience, which (1) understands what the term means for planning purposes and (2) can assess whether works amount to a conversion.
- The concept of ‘conversion’ brings a discrete threshold requirement before the Class Q PD rights are engaged. If the development involves more than ‘conversion’, the application falls at the first hurdle.
- Where demolition is involved, this will clearly be a rebuild and not a ‘conversion’. But demolition is not an absolute necessity. In fact, it is a test “of substance, and not form” based on the facts and circumstances of each case. The matter is ultimately a planning judgment.
- PPG clearly implies the distinction between ‘conversion’ and rebuilding. In giving its guidance, PPG makes clear that where new structural elements are needed this will inevitably involve a degree of rebuilding. Hence, it is not regarded as a ‘conversion’ for the purposes of the PD right.
- The works the Claimants proposed went far beyond ‘conversion’. They were “starting afresh, with only a modest amount of help from the original agricultural building”.
What does this mean for development ‘on the ground’?
In considering whether the Class Q PD right (agricultural to residential conversion) applies, an LPA must consider whether the development amounts to a ‘conversion’. This is a freestanding threshold requirement that must be met, aside from the criteria and conditions attached to the PD right.
Hibbitt v Secretary of State clarifies that, where new structural elements are required and / or there is rebuilding involved, this will not be regarded simply as a ‘conversion’ – but goes beyond that, so the PD right is not engaged. The test is one of substance and not form. A decision will be based on the facts and circumstances of each case. The matter is ultimately one of planning judgment for the LPA when considering applications for prior approval under Class Q.
For further information or advice on the impact of this decision and other recent legislative developments in this area, contact the Planning & Environment team at Walker Morris LLP.

Business rates change and opposed lease renewals: Tips and tactics for landlords and tenants
The Landlord and Tenant Act 1954 (the 1954 Act) offers security of tenure protection for […]
The Landlord and Tenant Act 1954 (the 1954 Act) offers security of tenure protection for tenants in occupation of premises for business purposes so that, unless the landlord can oppose on one or more of a few, limited, statutory grounds for recovering possession, a tenant is entitled to be granted a renewal lease at the end of its tenancy. Furthermore, the 1954 Act can require statutory compensation to be paid to the tenant in the event that the landlord opposes a renewal lease solely on one of the ‘non-tenant-fault’ grounds (for example, if the landlord wishes to redevelop or to occupy the premises itself). The amount of statutory compensation payable is calculated by reference to the rateable value of the premises. On 1 April 2017 business rates are changing for the first time in seven years, and this could have a significant impact where landlords oppose 1954 Act lease renewals.
Calculation of statutory compensation
A landlord wishing to oppose the grant of a renewal lease must state its ground(s) of opposition either when serving a landlord’s section 25 notice to terminate the existing tenancy, or when serving its counter-notice to a tenant’s section 26 request for a renewal lease. If the landlord opposes the grant of a renewal lease only on non-tenant-fault grounds it will be liable to pay to the departing tenant statutory compensation at twice the rateable value of the premises where the tenant (or its predecessor) has been in business occupation for 14 years or more; or at the rateable value where the occupation has been for a period less than 14 years.
Revised ratings: Effect on statutory compensation
New business rates will come into force on 1 April 2017. (Draft revised rateable values were published on 30 September 2016 and business ratepayers can now go online to check for accuracy and to ascertain whether the rating of their properties will increase or decrease.) Rateable values currently in effect are based on 2008 valuations, but the market has changed considerably since then and many properties are expected to see a significant increase in values.
The rateable value used to calculate any statutory compensation payable is that which is in force at the date of service of the landlord’s termination notice or counter-notice. That means that, if the rateable value increases on 1 April 2017 and the landlord’s notice/counter-notice is not served by that date, compensation will be calculated by reference to the new, higher amount.
Tips and tactics
- Landlords and tenants alike should check the draft revised rateable values for their properties and arrange valuation inspections so as to determine the accuracy of (or indeed any obvious errors in) the new ratings. The new ratings will come into effect on 1 April 2017 and any appeals can be lodged from that date.
- Landlords and tenants should establish whether the rateable value of any property let on a 1954 Act-protected tenancy is increasing or decreasing and should factor that into their lease termination/lease renewal strategic review.
- In particular, where the rateable value is increasing and the landlord wishes to oppose a lease renewal, it will be in the landlord’s interests to serve its section 25 termination notice or its counter-notice to a tenant’s section 26 request for a new tenancy before 1 April 2017.
- Where a rateable value is increasing it will be in the tenant’s interests to wait until after 1 April 2017 before requesting a new tenancy so that, if the landlord does oppose, a higher compensatory sum will become payable.
- (Where a rateable value is decreasing, the advice for landlords is to serve their notices/counter-notices after 1 April 2017 and the advice for tenants is to serve their renewal requests as soon as possible, and in any event by no later than 31 January 2017, to require the landlord’s response while the existing, higher rating remains in effect.)

Lease or licence, and why it matters
Real Estate Litigator David Manda reviews the recent case of Holland v Oxford City Council […]
Real Estate Litigator David Manda reviews the recent case of Holland v Oxford City Council [1], which provides a valuable reminder of the differences between leases (or tenancies – these terms can be used interchangeably) and licences, and why that really matters.
Lease or licence?
Mrs Holland was a member of the travelling fair community who operated fairground rides over the same two adjacent plots at the St Giles Fair in Oxford for a few days each year. Following the Council’s reduction in the size of the plots available for Mrs Holland to occupy, Mrs Holland issued a claim which required the High Court to determine the legal nature of her occupancy.
Was Mrs Holland’s year on year occupancy of the same site a periodic lease/tenancy; was it a periodic contractual licence; or did she obtain each year a fresh, fixed-term licence to occupy for a few days only?
Why does it matter?
The question – and indeed the distinction between leases and licences generally – was crucial because a lease/tenancy confers on the tenant an estate in land, rather than merely a contractual permission to occupy.
A leasehold estate in land carries with it true ownership rights, which include the ability to exclude others from the area and the right to sell or sub-let. A lease/tenancy cannot be terminated without the landlord or tenant following the requisite legal process. A lease/tenancy may also have statutory security of tenure protection, which can further limit a landlord’s ability to recover possession and can, in some cases, give the tenant to a right to renew and/or require a landlord to pay compensation to a tenant if and when the lease/tenancy is duly brought to an end.
By comparison, a licence is a mere personal permission which is governed only by, and can be terminated in accordance with, its own terms and the general law of contract. A licence does not confer a legal estate in land and it cannot attract security of tenure.
Fairground plot – fair game
The judgment in this case provides a very clear reminder that it is patently not the terminology in which an arrangement is couched that determines the legal nature of an occupancy. Regardless whether parties are referred to as landlord and tenant or licensor and licencee; and regardless whether the arrangement is described as a lease/tenancy or a licence, the determining factor is whether or not the occupier has exclusive possession of the land. If the occupier has been granted the right to exclude all others, including the superior owner, from the site, then the occupation arrangement will be a lease/tenancy and not a mere licence.
Here, the terms of occupation agreed between the parties included various provisions that enabled the Council to exercise control over the site to ensure the safety of fair-goers and the smooth running and co-ordination of the fair and fairground as a whole. The terms did not include reservation of a right of re-entry for the Council or an express right of access and the High Court held that that was because the Council had never excluded itself – it had not granted exclusive possession to Mrs Holland – in any event. As such, Mrs Holland’s occupation was not a lease/tenancy and could only be a licence.
Whether the licence was periodic or merely for a fixed term was the next question. That was also of real importance because a periodic licence to occupy can amount to a contractual right to return to exactly the same site, of exactly the same dimensions, each year on an ongoing basis until termination by contractual notice to quit [2], whereas a fixed term licence to occupy simply automatically expires at the end of the specified [few] days and does not involve any right to renew (unless that is expressly agreed).
The High Court found, on the facts of this case, that the Council’s requirement for a fresh application and plot-allocation process to be taken each year; Mrs Holland’s involvement in that process each year; and the granting of a new permission, with the governing conditions changing slightly, each year meant that a new fixed term contractual licence came into effect each year, with each licence surrendering by operation of law the previous year’s licence.
Mrs Holland therefore had no lease/tenancy, no periodic licence (nor any express contractual right to renew) and so she had no right to demand any continued or ongoing occupation of any particular plot or size of plot.
WM Comment
Contracting parties often believe that, where a short term occupancy arrangement is contemplated, that does not merit the putting into place of a formal lease or licence document. Parties often believe that the time and costs involved in instructing a solicitor and completing legal documentation are not justified. However, as this case and the underlying legal principles confirm, that can be a false economy. Apart from the fact that a lack of legal documentation can reflect or result in a lack of clarity as to the respective parties’ obligations to each other and in respect of the site and any neighbouring premises [3], if the parties do not clearly understand and confirm between them the true legal nature of the occupancy arrangement, real difficulties can arise when it comes to issues such as termination and recovery of possession or renewal.
The best advice, whether you are a landowner or [proposed] occupier, is to speak to a specialist to ensure that you understand exactly what you want to gain out of any occupancy arrangement; the risks that you want to avoid; and what is the best legal means of achieving those ends. More often than not, completing a simple but formal lease or licence document upfront will save significant time, cost and inconvenience in the end.
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[1] [2016] EWHC 2545 (Ch)
[2] with the requisite notice being calculated by reference to annual nature of the licence and being given to expire at the end of a ‘period’
[3] for example, without any clear document in place, how do the parties know and record who is responsible for repairing the premises; whether there any service charge or insurance rent payable; what, if any, are the procedural requirements for the making of any payment demands; and so on…

Another contentious service charge case: Lessons to learn
Service charges can be costly and are often contentious. Admiralty Park v Ojo [1], yet […]
Service charges can be costly and are often contentious. Admiralty Park v Ojo [1], yet another service charge dispute to hit the legal headlines, highlights important lessons for landlords, tenants and contracting parties generally. Housing Litigation and Management Partner Karl Anders and Real Estate Litigation specialist Martin McKeague explain.
The rule
A service charge is a mechanism contained in a lease that allows the landlord to recover its running costs for the building from the tenant[s]. As service charges can be costly and sometimes complex, they are often the source of friction. The starting point when dealing with any service charge dispute – as, indeed, it is with any lease or other contract question – is the terms of the lease/contract itself. A tenant’s service charge liability does not arise at all unless and until the landlord has properly complied with the service charge procedure and calculations set out in the lease and so, as with any other contractual clause, the wording of the service charge provision is key. In accordance with leading authority, this general principle can be summarised simply as: the letter of the lease/contract is king [2].
An exception – estoppel by convention
So, if landlord or its agent does not comply fully with the service charge procedure in the lease, the tenant can lawfully resist its landlord’s claim for payment. But what happens if the tenant does not resist in those circumstances, and instead repeatedly pays service charge pursuant to the landlord’s non-compliant demands, as happened in the Admiralty v Ojo case?
The principle of estoppel by convention can come into play here, and can operate as an exception to the general rule.
Walker Morris has reported recently on cases in the commercial contract context which confirm that legally binding contracts can sometimes come into existence, or existing contracts can be varied, as a result of the parties’ conduct [3]. Similarly, an estoppel by convention may arise where parties act on an assumption that is either shared by both or is made by one and acquiesced by the other, to preclude one party from then denying the assumed circumstances where that would be unjust to the other.
Applying that principle to the Admiralty v Ojo scenario, when the tenant repeatedly paid up pursuant to the landlord’s non-compliant service charge demands, he acquiesced in the assumption that the landlord’s method of demanding service charge was acceptable. It therefore became unfair for the tenant subsequently to seek to deny the landlord’s demands, and the tenant was estopped from so doing. The parties’ conduct effectively gave rise to a new binding service charge mechanism and varied the terms of the lease.
WM Comment
It was relevant to the finding of an estoppel by convention in this case that the tenant had acquiesced over a long period in the landlord’s service charge methodology; that he had had the opportunity to read the lease and understand how service charges were supposed to be accounted for; and that he had even been involved in a prior service charge dispute in relation to the same lease in which he had not raised any objection. The best advice therefore remains that landlords and their agents should have regard to, and should strictly comply with, the particular provisions of all individual leases within their property portfolio. Failure to do so could leave landlords out of pocket as they remain obliged to provide services but may be unable to recover costs where procedural failings mean that tenants’ payment liabilities do not arise.
Practical advice
However, a key lesson to learn from this case is that, even if the wording in a lease or other contract is clear, if one party has departed from its terms and the other has gone along with that, an estoppel by convention or a variation may have occurred.
- Landlords and their agents should have regard to, and should strictly comply with, the particular provisions of all individual leases when making service charge demands.
- Tenants should also have regard to the specific service charge provisions in their lease. If they wish to preserve an ability to challenge a non-compliant demand, they should take immediate specialist advice on whether it is legally and tactically advisable to withhold payment.
- Parties should be aware that the lack of any legal requirement for formality means that binding arrangements can be formed by conduct as well as orally or in writing. It is therefore important that parties should not act in any way that is inconsistent with their intentions.
- Landlords, tenants and commercial parties in general should review their leases/contracts to see where any inconsistent or non-compliant conduct might have left their arrangements vulnerable to unexpected or inadvertent variation.
- It is vital that businesses educate their staff as to the risks of estoppel by convention and informal or inadvertent lease/contract formation or variation.
- Landlords’ agents, in particular, should ensure that where they are managing properties on their clients’ behalf, they act strictly in accordance with the terms of the relevant leases, or they could face negligence claims when procedural failings cause landlords to suffer loss.
If you would like any further advice or assistance, or if you are in any doubt as to your rights and liabilities pursuant to a service charge provision or indeed any other lease/contract term, please do not hesitate to contact Karl or Martin, who will be very happy to help.
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[1] Admiralty Park Management Company Ltd v Ojo [2016] UKUT 421 (LC)
[2] See our earlier briefing on the leading authority, Arnold v Britton & Ors [2015] UKSC 36: https://www.walkermorris.co.uk/publications/real-estate-matters-august-2015/letter-of-lease-is-king-says-supreme-court/
[3] https://www.walkermorris.co.uk/publications/disputes-matter-may-2015/contract-by-conduct-a-cautionary-tale/; https://www.walkermorris.co.uk/publications/disputes-matter-summer-2016/beware-letters-inadvertent-commitment/; https://www.walkermorris.co.uk/publications/disputes-matter-summer-2016/anti-variation-clauses-court-appeal-confirmation/