Reedbase v Fattal
In Reedbase v Fattal [2018] EWCA 840, an important decision for landlords and their advisers, the Court of Appeal today explained how and when a landlord would need to repeat its statutory consultaiton if the works carried out changed from the original programme consulted on. It set out how changes in works fits with the consultation regime under section 20 of the Landlord and Tenant Act 1985 and associated regulations for the first time, and separately considered a landlord’s obligation to make good a tenant’s demise for the first time in over 25 years. Jonathan Chew acted for the successful landlord.
Download a copy of the judgment here.
The Court of Appeal’s practical approach to the consultation regime will be of assistance to landlords, while the fact-sensitive approach ensures tenants retain the benefit of their statutory protection.
The Consultation Issue
Section 20 and the associated regulations require a residential landlord to consult its tenants on major works in two stages. This dispute concerned the second stage: presenting estimates to the tenants. Works were carried out to the roof terrace of a penthouse flat overlooking Regent’s Park. In the course of the works, the landlord changed the tiling on the roof from a tiles bonded onto asphalt to tiles resting on pedestals above a waterproof membrane. The estimates obtained by the landlord on which the tenants were consulted did not refer to the pedestal method. The tenant alleged there was not proper consultation on the works. The question for the Court of Appeal was whether the change in the works invalidated the second stage consultation such that the landlord could not recover all the sums spent (it was not in dispute on appeal that the sums were reasonable).
The Court of Appeal recognised (at [36]) that the there was no explicit statutory guidance on when a change in the works would invalidate a stage in the consultation such that it had to be repeated. The Court of Appeal held that the relevant test “must be whether, in all the circumstances, the [tenants] have been given sufficient information by the first set of estimates” and that “it must also be considered whether…the protection to be accorded to the tenants by the consultation process was likely to be materially assisted by obtaining the fresh estimates.” (at [36].)
On the facts of the case, fresh estimates would not assist having regard to the following factors: (1) the tenants who complained knew of the change and approved it such that there was no ambush; (2) the change in cost (and substance) was relatively small in proportion to the full cost of the works; (3) it was unrealistic to think contractors who had not been awarded the main job would tender for this small extra part and there was no evidence there would have been a costs saving; (4) the extra time of a retendering might prejudice other tenants; (5) the tenants had the overarching protection of section 19 (that the sums be reasonable and reasonably incurred).
Making Good
The tenant argued by putting down different tiles placed on a different support system requiring maintenance the landlord had not satisfied its obligation to make good the tenant’s premises in the course of its repair. The Court of Appeal rejected the argument that a landlord was obliged to replace exactly what was there before [14] or make a “like for like” replacement [12]. Instead, the Court of Appeal emphasised that there was no absolute obligation but rather an obligation on the landlord reasonably or “so far as possible” to restore the property to its pre-existing state [13]. This can include something different. The landlord’s approach was reasonable and there was no breach.
An Unanswered Question
An important issue left open was whether a tenant could waive or be estopped from relying on its statutory right to be consulted under section 20, or whether that statutory protection was inalienable. The landlord argued that, because the tenant in this case knew of the works that were being done and approved them, it was estopped from alleging any breach of the consultation regime and could not rely on those rights. The tenant argued an estoppel could not deprive it of its statutory protection. The Court of Appeal did not need to, and did not answer this question.
Jonathan was instructed by Forsters LLP in the Court of Appeal and at trial.
Rotrust Nominees Ltd v Hautford Ltd
This case confirms that there is no general proposition that a landlord will be entitled to refuse consent to assign, or alter, or change the planning use of the demised premises on grounds of feared enfranchisement and the consequent loss of the landlord’s interest under the Leasehold Reform Act 1967 (LRA 1967).
Two decisions of the Court of Appeal from 1976 which are often cited in support of such a general proposition are simply decisions on their own facts and they are distinguishable on the grounds that the leases in those cases pre-dated the enactment or even contemplation of the LRA 1967. General observations in textbooks such as Woodfall: Landlord and Tenant and Hague on Leasehold Enfranchisement that a landlord will normally be entitled to refuse consent on enfranchisement grounds are therefore of no real assistance.
This is also the first decided case concerning the inter-relationship between a covenant expressly authorising residential use and a covenant against applying for planning permission without the landlord’s consent. A user clause is not to be construed as being subject to a planning consent clause – that would amount to rewriting the lease.
Download a copy of the judgment here.
The facts
The case concerned a 100 year lease of a whole building in Soho executed in 1986. The lease permitted residential use but also required the tenant (Hautford) to obtain permission of the landlord (Rotrust) before making any application for planning permission (such consent not to be unreasonably withheld). Hautford wished to make a planning application to change the use of two floors of the building from office to residential use. Rotrust refused consent on the grounds that giving consent would increase the prospect of a successful claim by Hautford to enfranchise i.e. to acquire the freehold of the building under the LRA 1967. Rotrust also stated that it wanted to retain control of the building for estate management purposes as it forms part of a block of adjacent and contiguous properties in Rotrust’s freehold ownership.
Rotrust alleged that the purpose of the requirement to obtain consent to the making of a planning application is simply to protect the landlord from damage to the reversion. Hence refusal of consent was said to be reasonable because Rotrust was protecting its property interests in the face of a potential claim under the 1967 Act which would deprived it entirely of its freehold interest in the building and would also have an adverse impact on the value of its investment in the wider adjacent estate.
The decision on appeal
The Court of Appeal disagreed with that reasoning and upheld the first instance judgment. The purpose of the covenant as intended by the original parties to the lease was not to preclude residential use of two floors in frustration of the user covenant, which expressly authorised residential use of the entire building. There was no proviso that residential use was subject to landlord’s consent. Rotrust’s argument that the user clause must be read together with and subject to the planning consent clause was “no more and no less than a re-writing” of the user clause to make it subject to a proviso that landlord’s consent must be obtained. In withholding consent to a planning application the landlord was seeking to obtain a collateral advantage.
If Rotrust’s argument were right, Hautford would be precluded from applying for planning permission to enable residential use for the 70 or so years remaining of the lease term – even though any third party (including an intended assignee – there being no restriction on assignment) could at any time make a planning application for change of use. That could not have been the intention of the original parties.
The lease was granted against the legislative background of the LRA 1967. The Court of Appeal cases of Norfolk Capital Group Ltd v Kitway Ltd and Bickel v Duke of Westminster, both decided in 1976, where the landlords’ refusal of consent to assignment on grounds of feared enfranchisement was held to be reasonable, could be distinguished on the facts – and in particular on the basis that the leases in those cases were entered into before the LRA 1967 was enacted or foreseen.
The Court of Appeal also agreed with the Judge that estate management considerations were sufficiently met by the provisions in section 10(4) of the LRA 1967 for the insertion of restrictive covenants in the transfer of the freehold. Parliament had laid down a legislative regime balancing the rights of the tenant and of the landlord in such a situation and that scheme would not so seriously fail to protect the landlord’s wider interests in the surrounding estate as to justify the refusal of consent.
Postscript
Practitioners should note that the Court of Appeal remarked in a postscript that the case of Mount Eden Land Ltd v Bolsover Investments Ltd [2014] EWHC 3523 (Ch) (a decision given on an application for permission to appeal) did not satisfy the requirements of the Practice Direction (Citation of Authorities) [2001] 1 WLR 1001 and should not have been referred to at the trial. Mount Eden is referred to in textbooks including Hague and Hill & Redman, and had been cited in Hautford to support the argument that the 1976 cases are not general authority for the proposition that a landlord is not acting unreasonably in seeking to avoid the possibility of its property interests becoming susceptible to compulsory acquisition.
The Court of Appeal has refused Rotrust permission to appeal to the Supreme Court.
Tiffany Scott QC was instructed by Thomson Snell & Passmore LLP. She also acted for Hautford at first instance.
JSC BM Bank v Vladimir Abramovich Kekhman and others
Judgment was recently handed down in a lengthy fraud trial brought by a subsidiary of VTB Bank. The claims under Russian Law made against Russian businessman Vladimir Abramovich Kekhman included deceit and unlawful dissipation of assets.
Alan Gourgey QC acted successfully for the bank, securing judgment for over US$150m plus interest.
The judgment contains an interesting discussion on a number of issues including criteria for inferring fraud, consequences of failure to put your case to a witness, and the requirements that need to be satisfied for a claim under Article 1064 (general delict) of the Russian Civil Code.
Full judgment available to download here.
No 1 West India Quay (Residential) Ltd v East Tower Apartments Ltd [2018] EWCA Civ 250
Martin Hutchings QC and Jonathan Seitler QC recently appeared on opposing sides in the Court of Appeal case of No 1 West India Quay (Residential) Ltd v East Tower Apartments Ltd. It is the first reported decision on the application of the Landlord and Tenant Act 1988 in the residential context, but it has implications as much for commercial landlords and tenants, as for residential. The case examined important issues which arose from a long lessee of a flat applying to its landlord for consent to assign. Last week’s judgment decided that where a landlord refuses consent on three grounds, two of which are reasonable and one is not, the refusal of consent is still valid. The case also contains several important practical lessons for landlords who are under a duty not unreasonably to refuse consent to assign.
Martin Hutchings QC acted for the appellant and Jonathan Seitler QC for the respondent.
Gaia Ventures Ltd v Abbeygate Helical (Leisure Plaza) Ltd [2018] EWHC 118 (Ch)
Norris J has handed down judgment in the case of Gaia Ventures Ltd v Abbeygate Helical (Leisure Plaza) Ltd. The case was about an overage payment of £1.4million. The key issues were: (a) the meaning of an obligation on a developer (Abbeygate) to use “reasonable endeavours” to achieve “as soon as reasonably practicable” the satisfaction of certain conditions; and (b) whether the developer had become obliged to make the overage payment of £1.4million or to pay damages in lieu.
Mark Wonnacott QC and Harriet Holmes, who acted for the successful claimant (Gaia), argued that delaying satisfaction of one of those conditions for financial reasons breached the obligation to use reasonable endeavours to achieve it “as soon as reasonably practicable”. Norris J agreed, holding that, whilst reasonable steps had to be taken to achieve certain conditions, the requirement to take steps “as soon as reasonably practicable” relates to the time for performance. So, to use Norris J’s words:
“The obligation is not to do it ‘when convenient’ or ‘at the time best suited to Abbeygate’; but as soon as reasonably practicable”.
The judge went on to conclude that Abbeygate had not, in fact, satisfied that obligation, but, if they had, the overage would have been triggered at a time that entitled Gaia to claim the overage payment. Gaia was, therefore, entitled to recover the £1.4m overage payment.
Download the full judgment here.
FA Regulatory Commission
A FA Regulatory Commission chaired by David Phillips QC in his capacity as a member of the FA Specialist Panel has delivered a detailed reserved judgment. Such decisions are subject to the strictest confidentiality, so little particulars can be given. The issue concerned the jurisdictional question whether an individual was subject to the FA regulatory regime. The decision involved consideration of ownership and control principles and the effect of offshore discretionary trusts. David is currently chairing two other FA tribunals dealing with regulatory issues.
Cap Juluca
David Phillips QC has appeared in the Eastern Caribbean Court of Appeal sitting in St Vincent on appeal from the High Court of Anguilla. The appeal is the latest stage of the multi-facetted Cap Juluca dispute which has occupied courts and arbitrators in a variety of proceedings since 1991 in Anguilla, Antigua, St Lucia, Monserrat, New York and the Privy Council in London. This hearing concerned the effect of a New York bankruptcy court’s Order endorsing an arbitrator’s award concerning real property rights in Anguilla. The particular issue was the enforceability of charges registered in Anguilla in breach of the New York ruling. The Court of Appeal has to reconcile that Order with subsequent Orders of the High Court and of the Court of Appeal. The litigation continues to concern payment of very significant sums. Judgment has been reserved.
Invalidity of Break Notice: Sackville Property Select II (GP) No.1 Ltd & Anor v Robertson Taylor Insurance Brokers Ltd & Anor [2018] EWHC 122 (Ch)
Mark Wonnacott QC appeared for the successful landlord in Sackville Property Select II (GP) No.1 Ltd & Anor v Robertson Taylor Insurance Brokers Ltd & Anor [2018] EWHC 122 (Ch). The case concerned the validity of a tenant’s break notice, which was served by an equitable assignee of the term during the registration gap.
The first question that the Court had to decide was: by whom, in the circumstances, should the break notice have been given? It was held that notice ought to have been given by the former tenant. The equitable assignee of the term was not ‘the Tenant’ as defined in the lease, and so was not the correct party to give notice.
The next question was whether in law the break notice was given by or on behalf of the former tenant. The notice was served by EC3 Legal, expressly on behalf of the equitable assignee. The Defendants argued, however, that the former tenant was an unidentified principal of EC3 Legal or an undisclosed principal of the equitable assignee. The Court rejected these arguments on the basis that the Defendants had not shown that the equitable assignee or its agents had intended the notice to be given on behalf of the former tenant.
Even if the Court was wrong on this point, the notice was not valid unless a reasonable person in the position of the landlord would understand that when it stated the name of the equitable assignee, it in fact meant to state the name of the former tenant. The Court found that the reasonable recipient of the notice would have been in little doubt that the notice was given on behalf of the equitable assignee rather than the former tenant. Accordingly, the Defendants could not establish that the break notice was served on behalf of the former tenant.
The Court thus held that the break notice was invalid.
Commissioners for HM Revenue and Customs v Life Services Limited (Upper Tribunal) [2017] UKUT 484 (TCC)
Jonathan Davey QC has acted successfully for the Appellants in an important charity / tax dispute before the Upper Tribunal (Tax and Chancery Chamber). The case concerns the meaning of key legislative concepts including “devoted to social well-being”, as well as the functioning of the EU law principle of fiscal neutrality, in the context of a dispute concerning the proper tax treatment to apply to a profit-making private organisation providing day care services for adults with disabilities. The Upper Tribunal (Mr Justice Mann and Judge Timothy Herrington) upheld the grounds of appeal advanced by the Appellants in respect of the decision of the First-tier Tribunal (Judge Charles Hellier and William Haarer) ([2016] UKFTT 444 (TC)). A further element in the dispute, regarding the interaction between the UK’s devolved political/legal structure and EU VAT legislation, will be heard by the Upper Tribunal at a forthcoming hearing.
The Pensions Regulator v Payae & Ors
Judgment was handed down in the case of The Pensions Regulator v Payae & Ors on 23 January 2018 following a trial at the end of 2017. The Regulator obtained judgment for over £13.7m against the mastermind of a liberation fraud, together with others involved. The scam had had over 245 victims, who had been persuaded to transfer their retirement funds into scam schemes.
It is the first time that the Regulator has obtained an order under section 16 of the Pensions Act 2004, empowering the Regulator to apply to the Court to require individuals knowingly concerned in a misuse or misappropriation of scheme assets to make suitable redress.
Jonathan Hilliard QC, James Walmsley and Elizabeth Houghton all acted for the Regulator.