Real Estate Matters – Winter 2017/18


Real Estate Litigation Review: Key cases from 2017
2017 saw some significant real estate and housing disputes hitting the courts, clarifying key principles […]
2017 saw some significant real estate and housing disputes hitting the courts, clarifying key principles and making laws which impact on property owners, occupiers and advisers. Martin McKeague and Karl Anders highlight some of the key cases from the last year.
S’Franses Ltd v The Cavendish Hotel
In this case [1] the tenant had served a request for a renewal lease under section 26 the Landlord and Tenant Act 1954 (the 1954 Act), which the landlord opposed on the basis of ground (f) (that is, the landlord having an intention to demolish, reconstruct or carry out substantial works of construction on the premises). The landlord’s proposed works served no practical purpose and were simply planned in order to prevent the renewal of the tenant’s lease.
The High Court confirmed that a landlord’s right to oppose a protected commercial tenant’s statutory right to renew on the grounds of redevelopment of the premises may be valid even where the motive behind such redevelopment is to evict the tenant and obtain vacant possession. It is what the landlord is proposing to do and whether they intend to actually do it that matter, not the reasons why.
The finding in this case means that where a landlord is able to demonstrate a firm and settled intention to carry out proposed works, then the viability and motives behind the scheme are not taken into consideration.
Sparks v Biden
Terms will be implied into an overage agreement where it is a matter of business efficacy and where, without an implied term, the agreement would lack practical or commercial coherence.
In this case [2] the claimant (landowner) had entered into an option agreement with the defendant (developer) for an option to purchase the land for residential development. The developer was required to use all reasonable endeavours to obtain planning permission for the development of eight houses within three years of the date of the agreement. There was an obligation on the developer to proceed with development as soon as practicable once planning permission had been obtained and the option had been exercised. The agreement also included an obligation on the developer to pay an overage sum (calculated in accordance with a formula but with a minimum payment of £700,000) on the sale of any of the newly constructed homes, with any outstanding balance of the minimum sum to be payable on the sale of the final property.
Following the grant of planning permission, the developer exercised the option, bought the land and constructed eight homes. Instead of selling them and paying overage, however, he moved into one of the houses himself and retained and let the others as investment properties. He took advantage of an omission in the overage provisions of an obligation to market and sell the properties once constructed or any obligation to pay the overage if the houses failed to sell within an appropriate time, arguing that the provision gave him complete discretion as to whether and when to sell the properties (and therefore whether and when to pay the overage). According the contractual documentation, he was right.
However, the court determined that to interpret the agreement in such a way served to undermine the commercial purpose of the agreement. The court was therefore willing to imply an obligation on the developer, to market and sell each of the houses within a reasonable time.
This case represents a lucky escape for the landowner. See our more detailed briefing later in this edition of Real Estate Matters for an explanation and for our practical advice.
Vivienne Westwood v Conduit Street Development
Here [3] the tenant had taken a 15 year lease of a shop at an initial annual rent of £110,000 which was subject to upwards only rent reviews. On the same day, the tenant and landlord also entered into a side letter whereby the landlord agreed to accept an annual rent of £90,000 in year one and increasing incrementally to £100,000 in year five. The rent would then be capped at £125,000 for the next five years should a higher open market rent be determined at rent review. This agreement was understood to be personal to the tenant and contained a condition that should the tenant breach any terms the landlord could terminate the agreement immediately with the rents becoming payable as set out in the lease, as though the side letter had never existed. When some administrative confusion led to the tenant falling temporarily into arrears, the landlord sought to terminate the side letter and recover the full rent due under the lease. The tenant issued court proceedings claiming that the termination provision under the side letter was an unenforceable contractual penalty.
The High Court agreed with the tenant, relying on the case of Cavendish and ParkingEye [4] which defined a penalty as a contractual provision which imposes a detriment on the party that breached a primary obligation which is out of all proportion to any legitimate interest of the innocent party.
For further information and practical advice, see our briefing.
Williams and Waistell v Network Rail
In a surprising and important decision in February 2017 [5], Cardiff County Court determined that where a landowner fails to control Japanese Knotweed this can lead to a successful common law nuisance claim for damages for neighbouring owners, even where there is no physical damage caused.
Japanese Knotweed is an invasive plant which is capable of causing damage to buildings and land due to its rapidly spreading roots. It can be very difficult to insure, sell or obtain a mortgage over land on which Japanese Knotweed is present.
For a nuisance to be actionable at common law it must be the case that there has been an unlawful interference with the use and enjoyment of the claimant’s property. In this case the claimants were the owners of properties which backed onto a railway embankment which was infected with Japanese Knotweed. The court ruled that the plant had encroached on the claimants’ land and, while there had not been any physical damage, even if the plant was treated the value of the claimant’s property was diminished below its expected market value. The presence of Japanese Knotweed on the defendant’s land was therefore interfering with the claimants’ enjoyment of their own property.
London Borough of Hounslow v Waaler
The issue to be determined in this case [6] was whether or not the costs of replacing existing wooden framed windows with metal ones (amongst other things) had been reasonably incurred. The replacement was carried out following the council’s service of a notice under section 20 of the Landlord and Tenant Act 1985 (the Act) to carry out a process of repair at the premises, including replacement of the windows. However, the windows themselves were not in a state of disrepair – their replacement was therefore an improvement.
At first instance the First Tier Tribunal (FTT) held that the costs had been reasonably incurred and so were recoverable through the service charge. However that decision was reversed on appeal by the Upper Tribunal (UT), a decision which was upheld by the Court of Appeal.
The Court of Appeal confirmed that, under section 19 (1) (a) of the Act, whether costs were reasonably incurred:
- is determined by an objective standard of reasonableness
- which requires consideration to be given to the interests of the tenants, their views on what is being proposed, as well as the financial impact
- is not a question of whether the landlord has acted reasonably in its decision-making process or in deciding to carry out the work.
The key point to be taken away from this decision is that where a landlord carries out improvements the position of the tenants needs to be considered. Clearly the nature of the test is such that the determination will vary on a case-by-case basis.
Partridge v Gupta
The Civil Procedure Rules provide that the court’s permission is required to issue a Writ of Possession to enable landlords to recover possession of residential land, and that such permission will not be granted unless every person in possession of the land has received “such notice” of possession proceedings as appears to the court sufficient to enable the occupant to apply to the court for any relief to which it may be entitled. The case of Partridge v Gupta [7] has provided helpful guidance as to what will be sufficient notice:
- What constitutes sufficient notice pursuant to CPR 83.13 will vary from case to case.
- The court simply needs to be satisfied that any occupant knows enough about the possession proceedings to be able to apply for any relief to which he or she may be entitled.
- The requisite “notice” does not have to be a formal notice in any particular form, nor even a letter or other communication containing any particular or prescribed information.
- Neither service of the notice of application for permission for a Writ of Possession, nor a letter or other communication explaining that the application will be heard on a particular day/time, are required to comply with CPR 83.13 (but either would suffice).
- Where the occupant has been fully involved in the possession proceedings, a reminder of the terms of the court order and a request that possession is given up under the order is likely to suffice. If a landlord is in any doubt, it should explain, in the same communication, that it will seek permission for the issue of a Writ if possession is not delivered up by the occupant, and that eviction will follow.
- Where an occupant has not been fully involved in the possession proceedings, the landlord should write to them directly (if they are known by name), or should send a letter addressed to ‘the occupant(s)’ (if they are not), to inform of the terms of the possession order and request that possession be given up accordingly (if an order has been made at that stage); and to explain that permission for a Writ will be sought and that eviction will follow by that route if enforcement is necessary.
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[1] S’Franses Ltd v The Cavendish Hotel (London) Ltd [2017] EWHC 1670 (QB)
[2] Alfred George Sparks v Philip Nicholas Biden [2017] EWHC 1994 (Ch)
[3] Vivienne Westwood Ltd v Conduit Street Development Ltd [2017] EWHC 350 (Ch)
[4] [2015] UKSC 67, and see our Walker Morris briefing
[5] Stephen Williams v Network Rail Infrastructure Ltd and Robin Waistell v Network Rail Infrastructure Ltd, 2017 (unreported)
[6] [2017] EWCA Civ 45
[7] [2017] EWHC 2110 (QB)

The Digital Economy Act 2017: Cracking the New Code
Changing landscape An awful lot has changed in the world’s digital landscape since the original […]
Changing landscape
An awful lot has changed in the world’s digital landscape since the original Electronic Communications Code was introduced in 1984, which was designed to facilitate the installation and maintenance of fixed line communications networks. The Code was extended in 2003 in recognition of the development and availability of new forms of digital technology, however, it has long been considered complex, out of date and unsatisfactory for landowners, operators and infrastructure providers alike. Indeed, it was famously described in a 2010 case by Mr Justice Lewison (as he then was) as “one of the least coherent and thought-through pieces of legislation in the statute book”.
Companies now rely on super-high-speed fibre optic broadband to keep up with their competitors, and consumers are becoming more and more dependent on technology, particularly with the use of smartphones which have become a part of daily life.
The Digital Economy Act 2017, therefore, which partially came into force in July last year, introduces a new Electronic Communications Code, intended to aid the creation and operation of such networks, as well as to address some of the critical issues that currently affect the telecommunications industry. The new Code has not been welcomed by landowners, but the government has stated that it is simply putting communications on the same footing as other essential utilities such as water and energy.
What’s New?
Rents: In an attempt to bring rents in line with those paid by utilities companies and providers of other essential services, the government has introduced a rent valuation system known as the “no scheme” valuation. The value of the land will be assessed on the basis of its value to the landowner without the presence of the telecommunication equipment, rather than the value to the operator. This is likely to reduce the rents and compensation received by landowners for the loss of their land. In addition, it is envisaged that costs will escalate for landlords due to an increase in disputes that may arise in determining the level of rent and the rate of compensation.
Site Sharing, Additional Apparatus and Assignability: In response to the rapid growth of digital technology and in order to facilitate its pervasiveness, operators will now have an automatic right to assign agreements, upgrade their equipment or share their apparatus provided that there will be little or no adverse impact on the appearance of it and the upgrade will impose no additional burden on the landowner. Indeed, any term which prevents or limits assignments of the agreement to, or site sharing arrangements with, another operator or makes such arrangement subject to conditions (such as the requirement for additional payment) would be void. The notable exception to this is a term imposing an obligation on the current operator to give an authorised guarantee agreement (‘AGA’).
Operators will welcome this change as it allows them to roll out new technology as soon as it comes to market without having to obtain the landowner’s permission first. This will, however, represent a significant loss of control for landowners, who have been used to restricting and/or charging operators for any such changes. Under the new Code, landowners could now face different and/or additional occupiers on their property whom they had not originally bargained for or vetted from a financial or security perspective. It follows that landowners will therefore be likely to claim that any upgrades or additional equipment will constitute an additional burden, however, since operators will have no obligation to first notify landowners of any changes, they may not get the chance!
Contracting Out of the Code: In the past, landowners have commonly sought to contract out of the old Code, or at the very least limit its application. This will no longer be possible and landowners will not be able to negotiate terms that are more favourable than those set down by the new Code.
Dispute Resolution: In the event that landowners refuse to consent to the installation of equipment on their land, or they dispute the amount of compensation they are to receive, the new Code will provide for a more efficient dispute resolution procedure. The new Code confers a range of powers on the court to expedite the litigation procedure and it gives the Secretary of State the power (through regulations) to specify that the appropriate forum for resolving disputes will be the First Tier or Upper Tier Tribunals, rather than the County Court. It is expected that any disputes would be construed in the light of existing 1954 Act case law.
Security of Tenure: One of the main issues experienced with the old Code was that it did not exclude the security of tenure provisions of the Landlord and Tenant Act 1954 (‘LTA 1954’), which gives business tenants the right to renew their leases. As a result, operators could be protected by both regimes if the agreement could be regarded as both a 1954 Act lease as well as a ‘Code agreement’. This meant landowners trying to terminate such agreements were left with a complex and burdensome process and in light of this, landowners would often seek to exclude the 1954 Act in the usual way.
In the new Code, this double layer of protection has been removed, meaning that where a landowner has a genuine need to recover possession it should be able to do so under the one applicable regime. Where the primary purpose of the agreement is to grant Code rights, that agreement will be automatically excluded from the LTA 1954 (although it would be prudent therefore to ensure the agreement is clear on the face of it that it is intended to be a ‘Code agreement’. Where the grant of Code rights is not the primary purpose of the agreement, and it is one to which Part 2 of the LTA 1954 applies, the termination provisions of the LTA 1954 will apply instead.
This welcome change ensures that the relevant document will only be governed by one of the statutory regimes on termination. The downside to landowners is that the statutory notice periods for them to obtain possession are longer under the new Code than they were under the LTA 1954, but this should be weighed against an increase in certainty and transparency of process and, in reality, we would expect most terminations to be settled out of Court by way of negotiated procedure, as they are now.
Retrospective effect? The new Code will not have retrospective effect: it will not affect any rights or liabilities arising under existing agreements between landowners and operators.
Therefore, landlords would be best advised to keep those agreements in place as they are likely to command higher rents than those granted under the new Code. Indeed, it is likely that pre-existing agreements governed by the old Code will be renewed by landowners and operators’ attempts to surrender existing agreements will be refused.
WM Comment
As the new legislation comes into force and the network of electronic communications expands throughout the UK, there will be a growing need for landowners and operators alike to enter into new agreements that will therefore fall under the new Code. The Walker Morris transactional Real Estate team can assist you in negotiating and drafting such agreements so that they are appropriate for you (whether as a landlord or as operator), as well as advising on any existing agreements falling within the scope of the old Code.
In the event of dispute on the determination of the level of rent or rate of compensation for the use of a particular piece of land, or relating to the termination of an existing arrangement, our Real Estate Litigation team would likewise be happy to assist.

The Countryside Stewardship Scheme: Issues for buyers and developers of land
Steve Nixon highlights the Countryside Stewardship Scheme and offers his practical advice for potential purchasers […]
Steve Nixon highlights the Countryside Stewardship Scheme and offers his practical advice for potential purchasers and developers of land.
The CSS
The Countryside Stewardship Scheme (CSS) [1] is a new environmental land management programme, designed to encourage biodiversity and to protect environmental standards across land brought under the scheme. The scheme offers financial incentives for farmers, land managers, landowners and tenants, in exchange for a commitment to meet specific, pre-defined environmental objectives relating to land. Such objectives may include commitments to provide new hedgerows, improve water quality, and create new woodland space.
The CCS is administered by Natural England, the Forestry Commission and Rural Payments Agency on behalf of the Department for Environment, Food and Rural Affairs (DEFRA).
Issues to consider when buying land affected by the Countryside Stewardship Scheme
Prospective buyers and developers of land would be well-advised to conduct thorough enquiries before agreeing to purchase land affected by the CCS. Natural England have confirmed that unless a new owner expressly opts to continue an existing CSS on their newly acquired land, then that CSS scheme will automatically come to an end. However, many land features which have been developed as part of a historic CSS may attract the protection of existing environmental law. For example, hedgerows longer than 20m are protected under the Hedgerows Regulations 1997, and so cannot be removed without the consent of the local authority. Similarly, nesting birds are protected from any development work which might harm the birds or destroy their nests under the Wildlife and Countryside Act 1981. Additionally, land which is held to contribute significantly to the maintenance or restoration of a natural habitat or species may gain additional protection under the Conservation of Habitats and Species Regulations 2010.
Failure to comply with such environmental legislation can constitute a criminal offence, exposing any party breaching the legislation to both fines and potential imprisonment, as well as enforcement action by the relevant authority.
A new owner of land may not inherit any obligations to continue a previous CSS scheme agreed by a past owner, but could be faced with additional environmental obligations or restrictions on the use of the land, as a result of the land having been previously subject to a CSS scheme. Of course, if the land is not being acquired for development purposes, the new landowner may be content to continue the existing CSS scheme and notification may be given to Natural England to this effect, in which case both the ongoing land commitments and financial rewards will be transferred from the previous owner [2].
Brexit
As the CSS is underwritten by domestic legislation, it is unlikely that it will be immediately affected by the UK’s withdrawal from the European Union. It remains unclear whether the UK Government will decide to abolish or otherwise substantially alter the CSS once the UK leaves the European Union and is no longer compelled to enact EU Directives. While the Government continues to negotiate the terms of Brexit, it remains difficult to predict the exact form environmental protection legislation is likely to take in the future.
WM Comment
While the CSS itself does not appear to create any new environmental protections, land affected by historic CSS schemes may be subject to existing legislation of which potential buyers and developers need to be aware prior to any decision to purchase or otherwise acquire interests in land. Failure to conduct sufficiently thorough investigations into the potential environmental protections over land may result in significant frustration for new owners and developers. To this end, our Real Estate and Planning & Environmental teams at Walker Morris are able to provide expert advice concerning the benefits and impact of any CSS scheme.
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[1] The scheme has its origins in the Common Agricultural Policy (Regulation (EU) No 1307/2013 of the European Parliament and of the Council of 17 December 2013) and has been implemented in domestic law through the Common Agricultural Policy (Competent Authority and Coordinating Body) Regulations 2014, the Common Agricultural Policy Basic Payment and Support Schemes (England) Regulations 2014 and the Common Agricultural Policy (Control and Enforcement,
Cross- Compliance, Scrutiny of Transactions and Appeals) Regulations 2014.
[2] ‘Countryside Stewardship Manual’ published Nov 2015 by Natural England, p 84-85

HPA 2016: Proposed new offences affecting landlords and property agents
We have previously reported [1] on the Housing and Planning Act 2016 (HPA) as it […]
We have previously reported [1] on the Housing and Planning Act 2016 (HPA) as it passed through Parliament. The Act introduced a range of reforms intended to help more people to own their own home, to get the nation building new homes faster and also to ensure that the way housing is managed is fair and fit.
With regard to management of housing, one of the key reforms relates to “Rogue Landlords”. The HPA provides that Local Housing Authorities can apply to the First Tier Property Tribunal for a ‘Banning Order’ of at least 12 months, prohibiting a person convicted of a banning order offence (as defined by section 14 of the Act) from letting a house or working as a lettings or property managing agent.
In December 2017, the Government published its response to the consultation it commissioned a year earlier. This includes its response to its proposal to treat relevant (1) housing, (2) immigration, (3) serious criminal and (4) other criminal offences as “banning order offences”, for the purposes of the HPA. The Government reported that it received 223 responses to these proposals, from various organisations and individuals across the housing sector and it has now published the outcome of the consultation.
Housing Offences
Respondents were asked whether they agreed that the relevant housing offences, set out in the consultation document of December 2016, should be treated as banning order offences [2]. A significant 84% of respondents agreed, demonstrating strong support for the proposals.
Respondents were also asked whether any other existing offences, for which a Local Authority has powers to prosecute, should also be treated as banning order housing offences. 46% of respondents agreed. As a result, the offence of providing false or misleading information (under the Housing Act 2004) has been included within the list of relevant housing offences. Other offences that were suggested by respondents have been included within the category of “other criminal offences” in the Government’s response.
Immigration Offences
Respondents were asked whether a landlord convicted of letting a property to an illegal immigrant under Part 3 of the Immigration Act 2014 should constitute a banning order offence. The majority of respondents (68%) agreed with this proposal. Of the 32% of respondents that did not agree, many were concerned the proposal would increase the risk of discrimination against potential tenants.
The Government concluded that the risk of discrimination was low, and by making the offence a banning order offence, it was merely implementing a new-sanction for a pre-existing offence.
Serious Criminal Offences
Respondents were asked whether they agreed that certain serious criminal offences committed at or in relation to a “dwelling in England, or in the local area where the offender owned or was involved in the management of the premises” should be regarded as banning order offences.
This received overwhelming support – 89% of respondents stated that an offence under the Fraud Act 2006, for which the offender was sentenced in the Crown Court, should be regarded as a banning order offence. A further 87% of respondents stated that offences involving the production, possession or supply of all classes of drugs and/or managing premises where drug dealing takes place should be regarded as banning order offences. 90% of respondents also agreed that offences under Sch 15 of the Criminal Justice Act 2003 (specified violent and sexual offences) should be regarded as banning order offences.
In light of the significant support, the Government considered that any offence involving fraud, the production, possession or supply of illegal drugs and violent and sexual offences should be included within the list of banning order offences, provided there is a link between the crime and the property and/or the tenant.
Other Criminal Offences
84% of respondents stated that certain other criminal offences should also be regarded as banning order offences, while 66% of respondents stated that a link should be established between the property and the offence to qualify as a banning order offence. The Government agreed that it was “sensible and proportionate” that an offence committed by a landlord should only be a banning order offence if there is a link between the offence and the property or tenant. In response, the Government has prepared a list of the other offences that are most likely to be committed against tenants for the purposes of inclusion in the HPA.
Outcome
The Government will now proceed to introduce statutory regulations specifying what offences are to be regarded as banning order offences for the purposes of the HPA.
Banning orders for rogue landlords and managing agents are expected to come into force on 6 April 2018.
WM Comment
Banning order offences are to be introduced in an attempt to combat the issue of rogue landlords and agents. It is possible that this initiative will aid Local Authorities to tackle this problem. However, the success of implementing this will of course depend on whether Local Authorities have the means and capability to enforce their statutory powers.
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[1] See our earlier articles: https://www.walkermorris.co.uk/publications/abandoned-properties-and-rogue-landlords-new-laws-proposed-in-the-housing-and-planning-bill-2015-16/; and https://www.walkermorris.co.uk/publications/housing-planning-act-2016-headline-changes/
[2] The proposed list of banning order offences as set out in the Government’s Consultation Document of December 2016 is as follows:
Illegally evicting or harassing a residential occupier in contravention of the Protection from Eviction Act 1977 or the Criminal Law Act 1977;
Any of the following offences under the Housing Act 2004:
Failure to comply with an Improvement Notice;
Offences in relation to licensing of Houses in Multiple Occupation (HMOs);
Offences in relation to licensing of houses under Part 3 of the Act;
Allowing a HMO that is not subject to licensing to become overcrowded;
Failure to comply with management regulations in respect of HMOs;
An offence under the Health and Safety at Work etc. Act 1974 where a person contravenes section 36 of the Gas Safety (Installation and Use) Regulations 1998;
Failure to comply with a Prohibition or Emergency Prohibition Order under sections 20, 21 and 43 of the Housing Act 2004;
An offence under section 32 of the Regulatory Reform (Fire Safety) Order 2005

Overage and implied terms: Caution required!
The recent High Court case of Sparks v Biden [1] has emphasised that overage provisions […]
The recent High Court case of Sparks v Biden [1] has emphasised that overage provisions can be particularly tricky. Walker Morris partners Will Cousins and Martin McKeague explain and offer their practical advice.
Overage and traps for the unwary
Overage payments are frequently negotiated to become payable to landowners/sellers on or after completion, if and when certain conditions are met – usually in the context of a development deal. Typically, overage agreements arise where a landowner wishes to sell land at its current value, but also wishes to participate in any profit that may be realised at a later date, for example when planning permission is granted in future, or the land is redeveloped.
Although overage agreements are very common, they are always particular to their own facts and they are often complex and fraught with risk. That is because it is notoriously tricky to cater in the drafting for unknown future events; for parties with changing and potentially conflicting interests; and to cover all possible eventualities.
Common scenario
The recent case of Sparks v Biden has highlighted some of the key issues of which landowners/sellers, buyers/developers and their professional advisers should be aware.
In what is a very common scenario, the landowner, Mr Sparks, granted Mr Biden, an experienced developer, an option to purchase land which had the potential for residential development. The agreement required Mr Biden to apply for and use all reasonable endeavours to obtain planning permission and then, if the option was exercised, to develop the land as soon as practicable. The agreement also included an obligation on Mr Biden to pay an overage sum (calculated in accordance with a formula but with a minimum payment of £700,000) on the sale of any of the newly constructed homes, with any outstanding balance of the minimum sum to be payable on the sale of the final property.
Following the grant of planning permission, Mr Biden exercised the option, bought the land and constructed eight homes. Instead of selling them and paying overage, however, he moved into one of the houses himself and retained and let the others as investment properties. In doing so, Mr Biden took advantage of an omission in the overage provisions of an obligation to market and sell the properties once constructed or any obligation to pay the overage if the houses failed to sell within an appropriate time.
Mr Biden’s position was that the overage provision gave him complete discretion as to whether and when to sell the properties and, therefore, whether and when to pay the overage. According the contractual documentation, he was right.
As a landowner who stood to make a significant financial loss, Mr Sparks’ only option was to ask the High Court to imply terms into the overage agreement to overcome the omissions in the drafting.
Implying terms – an uphill struggle
As Walker Morris has reported previously [2], convincing a court to imply terms into a contract, in particular a commercial contract that has been negotiated between commercially experienced or sophisticated parties and/or parties who have been legally advised, is not easy – at all. In fact, it is trite law that the court will not step in to correct what may have turned out to be a ‘bad bargain’ between parties.
The recent leading case of M&S v BNP Paribas confirmed that, because the implication of terms into commercial contracts is potentially intrusive, terms will not be implied lightly. Underpinning this are the concepts of ‘freedom of contract’ and ‘contract is king’, both of which are crucial to English commercial contract law.
In order for a term to be implied, it must be necessary to give business efficacy to the contract. The test is a high bar which asks whether, without the term, the contract simply does not work. Where the parties have entered into a formal contract, especially where they have been legally advised, it will be particularly difficult to imply any term(s) as it will be doubtful whether any omission was the result of the parties’ oversight or a deliberate decision. In addition, for a term to be implied, it must be obvious; capable of clear expression; and must not contradict any express term of the contract.
All of these factors mean that, in practice, courts rarely ‘interfere’ to imply terms.
However, in M&S v BNP Paribas the Supreme Court also held that, when deciding whether or not to imply a term the court will consider the presumed intention of the parties, and that what matters is the hypothetical approach of reasonable people in the position of the parties at the time the contract was made.
Cautionary case
Applying the M&S v BNP Paribas approach to the facts of this case, the High Court ultimately decided that an obligation on the developer, to market and sell each of the houses within a reasonable time, should be implied into the overage agreement.
The judge considered that, on a natural reading of the contract as a whole, the arrangement was directed towards bringing about a situation where overage would become payable. It held that implying terms to make that happen within a reasonable time was necessary as a matter of business efficacy and was so obvious as to go without saying.
The court took into account the fact that, while Mr Sparks, the seller, was a businessman, he was not an experienced developer (whereas Mr Biden was); and he was of retirement age and clearly intended to benefit financially and all-but imminently from the overage arrangement.
It is easy to see, however, that if either the particular facts or the overall structure of the overage agreement had been at all different, the case could have gone the other way.
Because of the developer’s conduct in resisting the sale of the houses to date, the court also took the relatively rare step of making an order for specific performance. That is an order, which the court will police and enforce, to compel a party to perform the requisite contractual obligations. (However the judge adjourned the precise working out of the order to a subsequent case management conference, acknowledging the difficulties that could be involved in drafting appropriate mechanisms for the marketing and timing of the sale of each of the properties.)
WM Comment and practical advice
he outcome in this case is probably morally correct on the facts, and the law on implying terms does contain just enough flexibility as to allow the court to legitimately reach the decision that it has. Nine times out of ten, however, a case like this could well have had the opposite outcome.
The seller in this case was a businessman who was legally advised and entered into a complex, negotiated, written commercial contract. He very narrowly avoided losing out on a lucrative overage arrangement because of loose drafting at the outset of an apparently mutually-beneficial arrangement when, no doubt, relationships were good and trust between the parties ran high.
The job of the real estate lawyer instructed to draft an overage agreement is a difficult one. The lawyer has to look past the amicable relations, the apparent common interest and the presumed easy ‘win : win’ of an overage outcome. He or she has to closely probe and predict each party’s ultimate and potentially changing interests and intentions – even anticipating eventual underhand tactics and future ‘worst case’ scenarios – and then to cater for them in the drafting.
When entering into overage arrangements, parties and their lawyers should consider very carefully what exactly will trigger overage payments and whether there is any scope at all for either party avoiding its obligations. Ideally, provisions should include clear and specific timescales within which conditions should be met; obligations should arise; and payments should be made. Wherever there is any scope for uncertainty, formulas for ascertaining values; mechanisms for enforcing obligations and resolving disputes; and longstop dates for payment should be included expressly in the contract.
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[1] [2017] EWHC 1994 (Ch)
[2] See our earlier briefings on the subject of implying terms: (1) on the leading case of M&S v BNP Paribas: https://www.walkermorris.co.uk/publications/break-clauses-apportionment-and-implying-contractual-terms-supreme-court-puts-an-end-to-the-confusion/; and (2) a recent key contract case update: https://www.walkermorris.co.uk/publications/disputes-matter-spring-2017/contract-interpretation-key-case-update/;

Government response to leasehold market review
In August we explained that the Government was consulting on perceived unfairness in the leasehold […]
In August we explained that the Government was consulting on perceived unfairness in the leasehold market, including the sale of new leasehold houses and onerous ground rents; the recovery of possession for arrears of ground rent; and the inability of freeholders on shared estates to challenge the reasonableness of service charges. Today, 21 December 2017, the Government has published its response.
The “PPI of the property sector”?
Diversity in Low Cost Home Ownership (or, Immediate Market) options, coupled with economic pressures facing borrowers of all ages and across all socio-economic groups today, is resulting in mortgages increasingly being offered on leasehold flats, retirement housing, shared ownership arrangements, and so on. While leasehold has traditionally been the appropriate form of land ownership for properties within communal buildings and estates, a recent trend has emerged over for housebuilders to sell new-build houses as leasehold properties.
Earlier this year the BBC announced that: “Almost half of all newly built properties in the UK are sold as leasehold rather than freehold properties. Some homeowners have found they are then tied into paying a ground rent that increases every year.”
The reason for this is commercially motivated. Housebuilders sell the leasehold title to the house owner and then make a further financial return by selling the freehold title to a third party – often a profit-making entity owning a number of such properties. Many homeowners in this situation are starting to discover that their lease includes a clause which provides for ground rent to increase at a significant and unexpected rate. This can lead to them being unable to buy-out the freehold owner and also unable to sell the property on because the issue is adversely affecting saleability.
One MP has described this practice as the “PPI of the property sector”. In an attempt to address these, and related, issues, the Government has consulted on various matters, including the following, in its consultation paper ‘Tackling unfair practices in the leasehold market’:
- whether and how the Government should limit the sale of new leasehold houses
- what reasons are there for houses to be sold with leasehold (as opposed to freehold) tenure
- whether and how the Government should limit the reservation and increase of ground rent on new residential leases
- what effect the restriction of ground rents would have on the supply of new build homes
- whether arrears of ground rent should be exempted from ‘Ground 8’ possession orders made pursuant to the Housing Act 1988
- whether freeholders occupying shared private estates should be given rights to challenge the reasonableness of estate service charges similar to those enjoyed by leaseholders.
Government response
The Government received some 6,000 responses, the majority of which were from private individuals. Today, 21 December 2017, the Government has published its consultation response. The key points to note are:
- New legislation will prohibit new long leases being granted on residential houses (whether new-build or existing houses).
- The Government will work with UK Finance to address any misunderstanding of lending criteria in relation to leasehold property.
- The legislation will ensure that ground rents on new leases of houses and flats are set at a peppercorn rate only.
- The Government has written to developers to discourage the use of ‘Help to Buy’ equity loans for the purchase of leasehold houses.
- A number of developers have already introduced schemes to compensate existing leaseholders with onerous ground rents. The Government wants to see such support accelerated and extended to all affected leaseholders (including second-hand buyers) and for all developers to proactively contact customers.
- The Government will work with redress schemes and Trading Standards to provide leaseholders with comprehensive information on the available routes to redress, including where their conveyancer has acted negligently, and the Law Commission will consider whether unfair terms apply when a lease is sold on to a new leaseholder.
- The Law Commission will also consult on introducing a prescribed formula that makes it easier for leaseholders to buy the freehold of their home, while providing fair compensation to the landlord.
- The Government will consider what it can do to get commonhold [1] off the ground across the property sector, including working with mortgage lenders. (Commonhold was not successful when first introduced because of the financial incentives for developers in building leasehold.)
- Where ground rents exceed £250 per year or £1,000 per year in London, a leaseholder is classed as an assured tenant. This currently means that leaseholders could be subject to a mandatory possession order if they were to default on payment of ground rent, even where arrears are minimal. The Government has committed to action to address this, to ensure that leaseholders are not subject to unfair possession orders.
- New legislation will give freeholders who pay charges for the maintenance of communal areas/ facilities equivalent rights as leaseholders to challenge the reasonableness of service charges. The Government will also ensure that, where a freeholder pays a rentcharge, the rentcharge owner is not able to take possession or grant a lease on the property where the rentcharge remains unpaid for a short period of time.
The response also states that the Government is committed to improving the situation of leaseholders more generally, and the proposals outlined so far are a starting point only. The Government is now working to help professionalise managing agents, tackle unfair service charges and give consumers greater choice over who their agent is, and a call for evidence on this closed on 29 November. The Government also wishes to ensure that all landlords are signed up to redress schemes and will be consulting on whether this should also be extended to landlords who grant long leases, and will look at ways to modernise the home buying process, including addressing the particular challenges faced by leaseholders. A call for evidence on these issues closed on 17 December.
WM Comment
This leasehold market review and response is likely to result in some significant market and practice changes for housebuilders/developers, mortgage lenders and homeowners alike. Walker Morris will continue to monitor and report on key developments.
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[1] Commonhold is a type of freehold ownership which is created by a further registration at the Land Registry. Commonhold combines freehold ownership of a single property within a larger development, with membership of a company limited by guarantee that owns and manages the common parts of the development. It allows the owners of each unit within a development to be in control of the development, without a landlord or other party able to make decisions about how the development is run.

Minimum Energy Efficiency Standards: What you need to know
In 2016 we published a briefing on the Minimum Energy Efficiency Standards (MEES) introduced under […]
In 2016 we published a briefing on the Minimum Energy Efficiency Standards (MEES) introduced under the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (Regulations). Since then, the long-anticipated government guidelines have been published and there are now less than 6 months to go until the changes come in to force. It is therefore a good time to remind landlords on how best to prepare for the MEES and to shed further light on what can be expected in April 2018.
Background
According to the government’s Non Domestic-Private Rented Property Minimum Standard Guidelines (Guidelines), the energy used for heating and powering non-domestic buildings is responsible for around 12% of the UK’s emissions. In an attempt to combat damage to the environment and improve the economy, the Regulations will impose a condition that after 1 April 2018, a property cannot be let if it is rated F or G on its Energy Performance Certificate (EPC).
Key Information
Where MEES apply, the energy efficiency provisions will be rolled out in two parts:
- From 1 April 2018, commercial landlords will not be able to grant tenancies if their property is rated below band E on its EPC. This applies to new or existing tenants in new leases, renewals or extensions.
- From 1 April 2023, the minimum standard will also apply to all leasehold properties. This means that a landlord cannot continue to let a property with an F or G rating, even if it is subject to an on-going lease.
Generally the Regulations will apply to all non-domestic properties that are required to have an EPC and are privately rented on tenancies with terms of not less than 6 months and not more than 99 years. However, determining whether the MEES will apply is not always straightforward. The list of properties not required to have an EPC can include places of worship, holiday lets and some listed buildings. As this is a non-exhaustive list, it is a good idea to take legal advice if you are unsure whether the Regulations apply.
Where an EPC is obtained, it will be valid for 10 years, even if there is a change of tenant or the property is sold. When an EPC expires, a new one will only be required on the next ‘trigger point’ which can be sale, let or modification of the property. If a new EPC is applied for before the expiry of the 10 year term, this will always supersede any previous EPCs.
Limited exceptions
If a property is subject to the Regulations, there are limited exemptions available that may exclude a landlord’s responsibility, or at least buy some time. A new landlord may be exempt for a maximum of 6 months from when they take on a new property. Following this, exemptions can only be registered on one of the following basis:
- High Cost – to avoid landlords being faced with disproportionate costs, they are not required to install measures where the improvement costs will not be recovered within 7 years. A detailed formula for calculating this payback is set out in regulation 28(3).
- Consent– where consent to carry out works is required and cannot be obtained e.g. where a tenant sub-lets and requires consent from a superior landlord in order to make alterations.
- Impact on Value – where an independent surveyor determines that improvements will reduce the market value of the property by more than 5%.
- Unsuitable Measures – For wall insulation, where a written report provides that the improvement is not beneficial due to its negative impact on the property structure.
- Where all works have been done – if a landlord has made all the relevant energy efficiency improvements to the property that can be made and the property remains substandard.
It is important to note that these exemptions only last for 5 years from registration and do not transfer with the property. If a substandard property with a registered exemption is transferred, or if the exemption is more than 5 years old, the landlord must improve the rating or register a new exemption.
Enforcement
The MEES will be enforced by the Local Weights and Measures Authority (LWMA). If the LWMA believe that the landlord has been in breach of the Regulations at any time in the past 12 months, it may serve a compliance notice requesting information from a landlord which will help to decide if there has been a breach.
If it is found that a property is rented in breach of the Regulations, the following penalties will be imposed:
- Where a property is rented for a period of fewer than 3 months, the fine will be equivalent to 10% of the property’s ratable value, to a minimum £5,000 and maximum £50,000.
- When the breach exceeds three months, the penalty is 20% with a minimum of £10,000 and a maximum of £150,000.
Further penalties of up to £5,000 may be imposed where the landlord has registered false or misleading information on the exemptions register, or where it has failed to comply with a compliance notice.
If a landlord believes that a penalty notice was based on an error of fact or law, that the notice does not comply with the Regulations or that it was inappropriate to serve a penalty notice on them in the circumstances, it may appeal to the First-tier Tribunal (General Regulatory Chamber). Details of how to appeal are contained in the Guidelines.
The Landlord and Tenant Act 1954 (the Act)
The Guidelines make clear that the nothing in the Regulations should impact on the rights of a tenant under any other regulations, including those set out in the Act. This means that where a tenancy has protection of the Act and the tenant has a right to renew, the landlord cannot refuse the renewal on the basis that the property is substandard. Equally, tenants cannot use a landlord’s non-compliance as a reason to get out of a tenancy agreement early.
Generally, if a new lease is to be granted on a sub-standard property, the landlord has no choice but to improve the rating or register an exemption. However, where a new lease is granted in accordance with the Act, the new Landlord could be eligible for the aforementioned sixth month exemption.
Lenders
Lenders should be aware that if they have security in a property and that property falls below the minimum standard, its value could decrease on the basis that it will no longer be rentable. Further, lenders may find that borrowers with a substandard EPC rating are impaired financially and may be unable to make payments as a result. A lender should be mindful that if this leads to it taking possession of the property, it will become the landlord and will be liable under the Regulations itself.
Landlords of Long Leases
As has already been mentioned, the MEES will not to apply to leases with a term of more than 99 years, meaning that many freehold owners/long lease landlords will not be subject to the Regulations. These landlords should still be aware of the changes though, as they may notice knock-on effects.
As with lenders, the landlord of a long lease should be mindful that their property may face a reduction in value caused by a substandard EPC rating. It may make their interest more difficult to sell on, and new tenants may be unwilling to take on a lease where they will be responsible for improvement works.
Cost Implications
The Regulations initially referenced the Green Deal and Green Deal finance, a finance mechanism introduced under the 2010-2015 Government. It has since been confirmed that such finance has not been extended to non-domestic property and is therefore unavailable to commercial landlords. The implication is that landlords will be required to fund improvement works themselves, or attempt to recoup costs from their tenants.
Clearly, the Regulations are going to be a financial burden for landlords, as improvement works could be costly, but not carrying them out could result in a complete loss of rental income. The high cost exemption detailed above should ensure that any amount that is paid out in improvements is returned in energy savings over 7 years. Unfortunately, a 7 year recoup will not assist in the initial cost of works and as many tenants are responsible for utility payments, it may transpire that it is only them that reap the benefit.
In order to share the costs, a landlord could try and include an express obligation in a lease that the tenant foot the bill for improvement works. Otherwise, it should ensure that lease provisions on service charge, rent reviews and yielding up are drafted to ensure that expenditure for improvements can be recovered elsewhere.
Lease Terms
In addition to specific provisions relating to costs, a landlord may consider the following amendments to its current lease terms:
- Right of Entry – It may be beneficial to reserve a right to enter the premises to carry out improvement works;
- Obligation to do works – The landlord may wish to oblige the tenant to carry out the required improvement works;
- Alterations – The landlord may want to prevent the tenant from making alterations that could negatively impact the EPC rating of the property;
- Obtaining the EPC – The landlord may wish to prohibit the tenant from obtaining an EPC, so as to avoid the tenant obtaining a substandard EPC that would supersede the landlord’s current certificate;
- Yield Up – The yield up provisions could be amended so that the tenant cannot yield up with less than an E rating on the EPC
- Break Option – A break option could be included so that the landlord is able to terminate the lease if continuing to let the property would put it in breach of the Regulations;
- Green Leases – Generally, a landlord and tenant may wish to enter in a ‘green lease’ in which their responsibility for efficient energy is shared.
Practical advice
Landlords and lenders should assess their portfolios to work out which of their properties will be subject to the Regulations and which of those may fall in to substandard EPC categories. Purchasers of properties intending to let those properties and landlords with upcoming renewals should ensure that their lease terms protect their position in line with the costs and practicalities of making their property energy efficient.