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Real Estate Litigation Review: Key cases from 2017

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06/02/2018

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)

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