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Contents... 1

Tenants’ Liability to Contribute to the Cost of Major Works........... 6

The Main Issue Arising in Francis v Phillips [2014] EWCA Civ 1395...................................... 6

2.1

Defining the Competing Approaches..................................................................... 6

2.2

Why the Aggregating Approach was rejected...................................................... 8

Background Note to the Francis Case................................................................................. 6

2.3

How is a Single Set of Qualifying Works to be identified?...................................... 8

2.4

Tenants’ Rights where Costs Threshold Not Exceeded .......................................... 10

Consequences of the Court of Appeal Ruling................................................................... 10

Recent Decisions on Rights of Way.................................................................... 12

Scope of Easement................................................................................................................ 12

Abandonment of Easement................................................................................................. 14

2.4

2.4.1 Relevant Principles of Law ........................................................................................ 16

2.4.2 Partial Abandonment Possible? ............................................................................... 16

2.4.3 Abandonment or No Abandonment?..................................................................... 18

Intended Easements.............................................................................................................. 18

3.3

3.3.1 The Facts...................................................................................................................... 20

3.3.2 3.3.2 Applying the Relevant Principles..................................................................... 20

3.4

Items Left by Borrower in Mortgagee in Possession Sale or Tenant on Sale of Tenanted...................................................................................... 50

Donovan v Rana [2014] EWCA Civ 99..................................................................... 20

Comment on this case............................................................................................... 22

Background Note to the Da Rocha-Afodu and Campbell cases................................... 50

1.3

Chattels Left by Borrower in Repossessed Property................................................ 50

1.4

Sections 12 and 13 Torts (Interference with Goods) Act 1977............................... 50

Two Cases Involving Mortgagees in Possession.................................................................. 52

2.1

2.1.1 The Ruling..................................................................................................................... 53

Campbell v Redstone Mortgages Ltd [2014] EWHC 3081 (Ch)........................................ 53

Dwyer v City of Westminster [2014] EWCA Civ 153................................................. 14

3.1

Da Rocha-Afodu v Mortgage Express Ltd [2014] EWCA Civ 454.......................... 52

The law applied to this case...................................................................................... 53

Sale and Rent back......................................................................................................... 56

Background Note to Scott v Southern Pacific Mortgages Ltd.......................................... 56

Scott v Southern Pacific Mortgages Ltd [2014] UKSC 52.................................................... 57

Ensuring Full Recovery of Service Charges in Long Residential Leases............................................................................................................. 58

Background Note on the Morris and Solarbeta Cases...................................................... 58

1.2.1 Lloyds Bank v Bowker Orford [1992] 31 EG 68......................................................... 58

Morris v Blackpool Borough Council [2014] EWCA Civ 1384............................................. 60

2.1

The Relevant Provisions of the Lease (Emphasis Added)....................................... 60

2.2

The Disputed Demand............................................................................................... 61

2.3

The Question to be Answered................................................................................... 61

Scope of Duty to Report to Lender Matters Potentially Affecting Valuation.......................................................................................................... 26

Background Note to E.Surv Ltd............................................................................................. 26

2.3.1 The Ruling..................................................................................................................... 61

Comment on this Case.......................................................................................................... 62

E.Surv Ltd v Goldsmith Williams Solicitors [2014] EWHC 1104 (Ch)..................................... 26

2.1

The Contribution Sought............................................................................................ 26

Solarbeta Management Company Ltd v Akindele [2014] UKUT 0416, LRX/25/2014

2.2

The Parties’ Contentions............................................................................................ 28

(heard before the Upper Tribunal)....................................................................................... 62

The Judge’s Conclusions....................................................................................................... 28

4.1

Effect of this Case................................................................................................................... 30

Comment on Solarbeta......................................................................................................... 63

Recent Case Law on Architects’ Certificates............................................ 34

Background Note to Elmbid and Optima cases................................................................ 34

Breach of Trust Claim by Mortgage Lender................................................ 64

Elmbid Ltd v Burgess [2013] EWHC 1489 (Ch)...................................................................... 34

Background Note on the Mark Redler case....................................................................... 64

AIB Group (UK) plc v Mark Redler & Co Solicitors [2014] UKSC 58.................................... 64

2.1

Hunt v Optima (Cambridge) Ltd [2014] EWCA Civ 714..................................................... 38

3.1

When were the Certificates issued?......................................................................... 38

3.2

Negligent Misstatement Claim and the Relevance of Reliance.......................... 38

3.3

Was There a Claim under a Collateral Warranty?.................................................. 40

3.4

Dual Duty owed?........................................................................................................ 41

The Apparent Lessons from this Case when an Architect’s Certificate is issued............ 41

Recent Case when One Co-owner Opposes Order for Sale Application................................................................................................................. 42

Section 14 TLATA 1996............................................................................................................. 42

1.2.5 The Court generally also has to have regard to the circumstances & wishes.... 44

Finch v Hall [2013] EWHC 4360 (Ch)..................................................................................... 44

2.1

The Effect of Condition 2....................................................................................................... 46

Observations on the Case..................................................................................................... 46

The Covenant and Its Scope..................................................................................... 62

The Supreme Court’s Decision.................................................................................. 66

10 Receiving Incomplete Replies to Pre-Completion ‘Requisitions’................................................................................. 68

The Application & Relevant Factors......................................................................... 46

Santander UK plc v RA Legal [2014] EWCA Civ 183........................................................... 68

1.1

The ‘Replies to Requisitions’ Given........................................................................... 68

1.2

The Court of Appeal’s ruling on a Possible Breach of Trust.................................... 70

1.3

Import of Reply Given to Requisition 4(B) in this Case............................................ 70

1.4

Function & Adoption of the Completion Code...................................................... 70

1.4.1 Was The Completion Code Adopted?.................................................................... 71

1.4.2 Effect of Absence of Reply to Requisition 7(D) in this Case................................... 71

11 Listed Buildings: Enterprise and Regulatory Reform Act 2013...... 72 12 Conservation Area Consents in England...................................................... 74

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Section 1 Tenants’ Liability to Contribute to the Cost of Major Works

1) Background Note to the Francis Case Where the landlord under a residential lease intends to carry out qualifying works and the contribution of any tenant or each of the tenants in the building would exceed £250 in respect of those works, then the landlord is obliged to consult the tenants. The tenants’ liability to contribute towards the costs of such works would be limited to £250 each, unless the landlord consults in the required manner. However, the appropriate tribunal (the First-tier Tribunal in England or the Leasehold Valuation Tribunal in Wales) does have power to make an order dispensing with the obligation to consult, in which case the prescribed limit would not apply. For these purposes, “qualifying works” means works on a building or any other premises. See further the Service Charge (Consultation Requirement) (England) Regulations 2003 and Service Charge (Consultation Requirement) (Wales) Regulations 2004.

2) The Main Issue Arising in Francis v Phillips [2014] EWCA Civ 1395 The primary question for the Court of Appeal was, where a series of repairs have been or are to be carried out, which approach should be used to ascertain whether the £250 threshold has been reached? Francis v Phillips [2014] EWCA Civ 1395 2.1) Defining the Competing Approaches Sir Terence Etherton, the Chancellor of the High Court, explained the nature of the competing approaches. •

The aggregating approach would have involved “calculating ... all the

qualifying works in any given period, for the purpose of ascertaining whether

they exceed ‘the appropriate amount’ and so triggering the statutory

consultation with the tenants.” The given period would normally be the service

charge year prescribed by the lease.

•

By contrast, the ‘sets’ approach would involve “... identifying separate sets of

works or projects for the purpose of identifying whether ‘the relevant costs’

exceed ‘the appropriate amount’ specified in the section and so triggering the

statutory consultation process.”

2.2 Why the Aggregating Approach was rejected The Court of Appeal rejected what was called the ‘aggregating approach’ and instead adopted the ‘sets approach’. Lord Dyson MR, Master of the Rolls, explained why the aggregating approach could not have been Parliament’s intention. “26. ... Mr Seitler illustrates the problem with the following example. Imagine a residential block of flats with 4 tenants: the annual regulatory limit is 4 x £250: £1000. Three lots of minor works on a building each costing £75 are carried out in the first half of the year. The landlord has spent £225 on service charge items. There has been no consultation. Unexpectedly, in September the outer door of the block breaks and a new door frame is required which would cost £800. A storm in November causes window damage that would cost £400 to repair...” “27. On the aggregating approach, the annual limit is exceeded by the broken door. The landlord is obliged to consult on it. This process takes time and costs money. If instead he replaces the door immediately, he has no right to recover the full amount without dispensation. Seeking dispensation has attendant legal and administrative costs as well as the risk of non-recovery and delay. But if he does not replace the door, the flats are unsafe and he is likely to have irate tenants.” The Master of the Rolls then explained how the sets approach would apply to the hypothetical example set out in paragraph 26 above. “On the sets approach, the landlord would not need to consult on any of these items. They are all distinct sets of qualifying works none of which costs more than £1000. The landlord could respond immediately and repair the damage to the door and the window...” 2.3 How is a Single Set of Qualifying Works to be identified? Using the sets approach, the question of what constitutes a single set of qualifying works is a question of fact to be determined objectively. The Master of the Rolls, at paragraph 36, said that this ... is a multi-factorial question the answer to which should be determined in a commonsense way taking into account all relevant circumstances. Relevant factors

are likely to include (i) where the items of work are to be carried out (whether they are contiguous to or physically far removed from each other); (ii) whether they are the subject of the same contract; (iii) whether they are to be done at more or less the same time or at different times; and (iv) whether the items of work are different in character from, or have no connection with, each other ...” The Chancellor, who agreed with the Master of the Rolls on this point, added at paragraph 66 – “... The way in which the works were planned and the lessor’s reasons for the way they were implemented are also of relevance, even if not decisive...”

2.4 Tenants’ Rights where Costs Threshold Not Exceeded Even where there is no requirement for consultation because a set of repair works would not cause the £250 threshold to be exceeded, the tenants will still be protected by the requirement of section 19 of Landlord and Tenant Act 1985 that residential service charges must be reasonable and reasonably incurred: see further paragraphs 26, 29 and 63.

3) Consequences of the Court of Appeal Ruling •

Andrew Bulmer FRICS, the UK Residential Director of RICS (the Royal Institution of

Chartered Surveyors) has hailed this decision as “a victory for common sense in

the block management world”: see discussion dated 3 November 2014

on www.rics.org. •

From the example given in paragraphs 26 and 27 of the judgment, it is clear

that this ruling in one respect will materially reduce the number of occasions on

which the person proposing to carry out works of repair will be obliged to

comply with the onerous requirements either to follow the detailed consultation

process prescribed by the aforesaid Regulations or to seek dispensation from a

tribunal from the consultation requirements.

•

However, the onus is placed on the landlord to correctly identify whether a

series of works amount to a single set, or separate sets, of qualifying works.

•

Moreover, the £250 cap has not been index-linked since it was first introduced.

This means that in real terms, after taking account of inflation, the threshold

diminishes in each passing year; with the long-term effect that the number of

sets of qualifying works that exceed the cap is likely to increase year-on-year.

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Section 2 Recent Decisions on Rights of Way

1) Scope of Easement Emmett v Sisson [2014] EWCA Civ 64 A right of way had been granted along a private driveway which ran along the boundary between two properties in Herefordshire. More specifically, there had by conveyance been granted to the purchasers. (the Respondents) “... a right of way for the owner of owners for the time being of the Property with or without vehicles and for all reasonable purposes in connection with the proper use of the Property as a dwelling house over and along the access way the approximate position of which is shown by a red and black dotted line on plan number 2 ...” The Conveyance also imposed an obligation on the purchasers: “... within three months from the date hereof to erect and at all times thereafter keep in good and substantial repair stock proof fences of a type and height and consisting of materials previously approved in writing by the Vendors to the whole length of all external boundaries between the points marked A B C and D on the said plan number 1 annexed hereto.” The dispute arose out of the wish of the Appellants to build a high brick wall along the actual boundary between the two properties. The Court of Appeal relied on a passage by Mummery LJ, who had stated the principles by which the nature of the extent of an express grant of a right of way was to be determined by the court in: West v Sharp [2000] 79 P & CR 327. In this case, Mummery LJ had said: “The nature and extent of a right of way created by an express grant depends on the language of the deed of grant, construed in the context of the circumstances surrounding its execution, including the nature of the place over which the right was granted ...” The Court of Appeal in Emmett regarded the construction of the relevant provisions of the Conveyance as clear. 12

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•

The right of way granted was “over and along the access way”.

•

The extent of the right is not limited by the wording “with or without vehicles”.

•

Nor was it limited by the words “for all reasonable purposes in connection with

the proper use of the property as a dwelling house”. These words may limit the

purpose for which the grant is made but they do not limit its physical extent.

•

On their true construction the words plainly granted a linear access along

the whole of the boundary and there were no words that either expressly

or impliedly limited the access to any one point or a number of points. This

construction was supported by the Respondents’ obligation to fence around

their property on all sides except along the boundary next to the

Driveway Land. Accordingly, the Court of Appeal was satisfied that the proposed wall would severely restrict the Respondents’ vehicular and pedestrian access to their land.

2) Abandonment of Easement Background Note to Dwyer v City of Westminster 2.1 Abandonment of a right of way is not to be lightly inferred by the courts

because, even if the current owner chooses another alternative route to

gain access to and egress from the property, the right of way might later be

valuable to him or a future owner (see Hirst LJ in Benn v Hardinge (1993)

66 P & CR 246, CA).

In fact, abandonment only occurs if the then dominant owner demonstrated

a fixed intention to abandon, so that thereafter neither he nor his successors in

title will make use of the easement (Gotobed v Pridmore [1970] 217 EG 759, CA

and Tehidy Minerals Ltd v Norman [1971] 2 All ER 475, CA). 2.2 Mere non-user, even for a long period of time, does not amount to

abandonment of the right: Williams and Hibbitt v Sandy Lane (Chester) Ltd [2006] EWCA Civ 1738.

2.3 A temporary abandonment would not cause the extinguishment of an

easement (Moore v Rawson [1824-34] All ER Rep 173).

2.4 Dwyer v City of Westminster [2014] EWCA Civ 153 A 1922 Conveyance conveyed a “substantial block of land in London NW8”, together with “the express grant of a full (vehicular and pedestrian) right of way from

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Edgware Road to the land being sold over a passageway between two properties on the northeast side of Edgware Road retained by the vendor (‘the Passageway’).” 2.4.1 Relevant Principles of Law Lord Dyson MR, with whom Aikens and Briggs LLJ agreed, adopted the summary of the law on abandonment of rights of way in Gale on Easements (19th ed) at para 12-104, which included the following: (a) whether a person intends an abandonment is ... always a question of fact to

be ascertained from the surrounding circumstances whether the act amounts

to an abandonment or was intended as such;

(b) ... to establish abandonment of an easement the conduct of the dominant

owner must have been such as to make it clear that he had at the relevant

time a firm intention that neither he nor any successor in title of his should

thereafter make use of the easement;

(c) abandonment is not to be lightly inferred ... ; (d) non-user is not by itself conclusive evidence that a private right is abandoned;

the non-user must be considered with and may be explained by the

surrounding circumstances.’

Lord Dyson then added “... that where the non-user is explicable by reference to the absence of any need of the owner of the dominant land to use the right of way for the time being, this will fortify a conclusion that there has been no abandonment of the right for all time ...” 2.4.2 Partial Abandonment Possible? The County Court Judge had found that two distinct groups benefited from the right of way; the first was ‘the Purchaser and his assigns ... and all persons authorised by them ...’; the second was ‘Lessees and Tenants, Owners and occupiers for the time being of the said hereditaments ... and all persons authorised by them’. Furthermore, the second group of person, but not the first group, had abandoned the right of way. The Court of Appeal disagreed with this conclusion. Lord Dyson MR concluded: “[23] The judge was in my view ... wrong in principle in concluding that there had been, or could be, a partial abandonment of a right of way, by reference to different classes of potential users of it. The compendious language of the 1922 Conveyance did not by its reference to lessees, tenants, owners and occupiers and

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persons authorised by them either add to or detract in any way from the grant of a freehold easement in a form of a right of way to the purchaser of the land the subject matter of that conveyance. All it did was to make it clear that the benefit of the right of way extended to every part of the land conveyed. A right of way, like any other easement, is a right which exists only as a right appurtenant to land. It is not simply granted to persons or classes of persons, and cannot exist in gross ... While it is just about conceivable that a right of way might be partially abandoned in the sense that its benefit could be severed from some part of the originally dominant land, this is not what the judge concluded, nor was it contended for by either of the parties. Again, I need not dwell on this conclusion, because counsel were agreed that the judge’s approach was wrong in principle.” 2.4.3 Abandonment or No Abandonment? Therefore, the Court of Appeal – 1)

Had to decide whether the established facts led to the conclusion that there

had been a total abandonment of the right of way, or no abandonment at all.

Ruled that this was a straightforward case of very long non-user of the

Passageway as a right of way, during a period when neither the freehold owner

of the dominant land, nor anyone else using any part of that land with the

freeholder’s consent (whether as lessee, tenant, occupier or mere invitee) had

any use for the Passageway as a right of way. There was no acquiescence in

some alteration of the servient land upon which a case of abandonment of the

right of way for all time could be mounted.

Left open the question of whether there could be a partial abandonment of a

right of way, in the sense of a permanent alteration to the servient land,

acquiesced in by the owner of the dominant land, which prevented its use as a

right of way for vehicles, as opposed to pedestrians.

3) Intended Easements Background Note to Donovan v Rana 3.1 If there are no grounds for implying an easement of necessity, or for implying

a continuous and apparent easement, “the law will readily imply the grant or

reservation of such easements as may be necessary to give effect to the

common intention of the parties to a [disposition] of real property, with

reference to the manner or purposes in and for which the land granted or some

land retained by the grantor is to be used…But it is essential for this purpose

that the parties should intend that the subject of the grant or the land retained

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by the grantor should be used in some definite and particular manner. It is not

enough that the subject of the grant or the land retained should be intended

to be used in a manner which may or may not involve this definite and

particular use” (per Lord Parker of Waddington in Pwllbach Colliery Co Ltd v

Woodman [1914-15] All ER 124).

3.2 The Court of Appeal in Stafford v Lee [1992] 65 P & CR, CA held that an

intended easement of way had arisen along a private roadway on a 1955

transfer of part of then undeveloped land to a Miss Walker. One factor was

that the road was the only means of access to the transferred land. However,

the key consideration was the plan attached to the deed, which showed

that the plot adjoined two other parcels of land on which houses had been

built. The court was satisfied on the balance of probabilities that the parties

must have intended to grant the right for residential purposes.

Miss Walker’s successors in title were entitled to the benefit of the easement.

They wanted to build a house on the conveyed land; and the Court held that

the right extended to construction traffic for that purpose.

3.3 Donovan v Rana [2014] EWCA Civ 99 3.3.1 The Facts In April 2004, the Claimants sold to the Defendants’ predecessors in title a plot of land adjoining the Claimants’ property as a building plot, together with an express right of way over the “Blue Land” that formed part of the Claimant’s retained land. The right to pass and re-pass over the Blue Land was granted “for all purposes connected with the use and enjoyment of the property but not for any other purpose”. The Transfer included a covenant by the Transferee “...to erect within one year from the date hereof, upon the property, the dwelling house to the satisfaction of the Local Authority.” The Defendants then acquired the plot and built a new house thereon called “Shalimar”. In doing so, they allowed their workmen to dig up the Blue Land to connect the normal utilities to the building plot, without the permission of the Claimants. 3.3.2 Applying the Relevant Principles The Court of Appeal, citing the principles set out in Pwllbach Colliery Co Ltd v Woodman and Stafford v Lee, held that it seemed “ ... to have been abundantly clear from the auction particulars and conditions that the purpose of the transfer was to enable the transferee to build a dwelling-house on the building plot”: per Vos LJ,

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with whom Rimer and Moore-Bick LLJ concurred. This conclusion was supported, inter alia, by the covenant cited above. Vos LJ further concluded that – i)

“In the context of this case, I am satisfied that the connection of the building

plot to the main utilities across the Blue Land was indeed necessary for the

building of a dwelling house on that plot in that locality in the manner obviously

contemplated by the parties to the original Transfer. That was, as the judge

found, the inferred common intention of the parties. In my judgment, the

easement proposed is necessary to achieve the parties’ expressly

intended purpose...”

ii)

The easement proposed was the right to connect the Defendants’ property

to the mains utility services across the retained land (the Blue Land) and to

maintain those connections.

iii)

An additional easement was to be implied into the Transfer allowing the

transferee and his successors in title to have access to the Blue Land to install

and maintain connections to the public utility services in the nearby road.

iv)

The intended easement had not been excluded by the provisions of the

Transfer, which stated that -

•

“Save for any rights of way or access expressly referred to in the Special

Conditions of Sale no rights of way or access for the benefit of the

property over the transferor’s retained land ... shall be deemed to be

expressly implied granted or reserved”; and

•

“The transferee and its successors in Title the owners for the time being of

the property shall not be entitled to any right of access or light or air

or other easements or rights which would restrict or interfere with the future

use of the sellers retained land for building or any other purpose.”

3.4 Comment on this Case •

Curiously, Vos LJ and Rimer LJ regarded the laying of connections to utilities,

per se, as falling within the scope of the express right of way because it was one

“purpose connected with the use and enjoyment of the property”. However,

Rimer LJ did not accept that the express grant of the right of way conferred

a right on the dominant owner to dig the retained land up for the purpose of

laying connections to the utility services through the retained land.

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•

Notwithstanding this case, litigation in this case would have been avoided if

the express rights granted to the transferee and successors in title had included

a specific right to dig up the Blue Land so as to lay utility connections and to

maintain them.

•

Another argument, which was not considered in this decision, is that, given that

the right to lay and maintain connections to utilities was within the scope of the

express right, then the grant of a right to dig up the retained land for the

purpose of laying and maintaining such connections was arguably an ancillary

right that was necessary to make the grant of the right of way fully effective.

This is pursuant to the principle identified by Peter Gibson LJ, delivering the

judgment of the Court of Appeal in Nationwide Building Society v James

Beauchamp [2001] 45 EG 142, that a -

“right of way is to be taken to carry with it such ancillary and incidental rights

as are necessary to make the grant fully effective, whether the right arises

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Section 3 Scope of Duty to Report to Lender Matters Potentially Affecting Valuation

1) Background Note to E.Surv Ltd In Mortgage Express Ltd v Bowerman & Partners [1996] 2 All ER 836, CA, the Solicitor negligently failed to report to the lender that the borrower was actually a subpurchaser; the flat had been bought by a Mr Arrach for £150,000, who simultaneously sold the flat to the borrower for £220,000 whereas the lender’s valuation indicated the market value of the flat to be £199,000. The borrower defaulted on payments and the lender repossessed but the property for £96,000. Delivering the leading judgment, Sir Thomas Bingham MR said that – “...if, in the course of investigating title, a solicitor discovers facts which a reasonably competent solicitor would realise might have a material bearing on the valuation of the lender’s security or some other ingredient of the lending decision, then it is his duty to point this out.” The Solicitor should have informed the lender of the price at which Mr Arrach purchased, being £49,000 below valuation. It is also worth bearing in mind that in this case, the price paid by Mr Arrach was not a piece of confidential information that required the Solicitor to obtain the borrower’s prior consent to disclose it to the lender.

2) E.Surv Ltd v Goldsmith Williams Solicitors [2014] EWHC 1104 (Ch) 2.1 The Contribution Sought The claimant surveyors valued a property at £725,000 and The Mortgage Business, in reliance on this valuation, approved a loan of £580,000 by way of remortgage that had been sought by the owner of the property. The mortgage offer was issued on 26 January 2006 and the remortgage was completed on 13 February 2006.

The property’s owner had apparently informed the surveyors that he had bought the property six years earlier for £600,000. However, the said owner had been the

registered proprietor for less than 6 months, having bought the property in September 2005 for £390,000. This information had not been brought to the lender’s attention pre-completion, as required by the Lender’s Handbook. The surveyors had already paid £200,000 in settlement of the lender’s claim against them in respect of the negligent over-valuation. They in turn sought contribution, under the Civil Liability (Contribution) Act 1978, from the defendant solicitors. 2.2 The Parties’ Contentions The surveyors’ case was that the solicitors failed, in breach of the express and implied terms of its contract with the lender, to advise the lender that the would-be borrower had been registered as proprietor of the property for less than six months and that the price he had paid for it as disclosed on the office copy entries, £390,000, was significantly less than the surveyors’ valuation as stated in the mortgage offer, £725,000. The surveyors further contended that had the solicitors done so then the lender would have requested the surveyors to reconsider their valuation in the light of that information, that at that point the surveyors would have realised that the borrower had misinformed them about the purchase price, and would have: (a) produced a significantly reduced valuation; and/or (b) informed the lenders about this misinformation, with the result in either case being that the lender would have declined to lend to the borrower and, thus, avoided the loss which it in fact incurred. Although the Solicitors admitted breach of an express obligation to inform the lender that the borrower had been the registered proprietor for less than six months, they denied that they were obliged to inform the lender as to the purchase price paid. This raised the question as to whether or not as the “Bowerman” duty (the duty on a solicitor to report to his lender client matters relevant to the valuation of the property offered as security for a loan) had been ousted by the terms of the CML Lenders Handbook.

3) The Judge’s Conclusions Judge Stephen Davies concluded i)

On the narrow point, it was not possible for the solicitors to say that the terms of

the Lenders Handbook, read with the Solicitors Practice Rules 1990 (Practice

Rules) and the certificate of title, excluded, on their true construction, the

Bowerman duty.

ii)

On the wider point, what the Lenders Handbook, read with the Practice Rules

and the certificate of title, was not intended to exclude the general obligation

to exercise reasonable care and skill in the performance of such activities or, as

part of such general obligation, the obligation to report to the lender as one of

the clients where, through the performance of such obligations, the solicitor

comes into possession of information which has a material bearing on the

valuation of the lender’s security or some other ingredient of the

lending decision. iii)

If the solicitor discovers information from the office copies or Land Registry

search about the recent purchase price which has a material bearing on

the valuation of the property, then he is under an obligation to the lender to

disclose it. That is an obligation which does not extend beyond the limitations of

the Lenders Handbook, is expressly preserved by cl 1.3 of the Lenders

Handbook, which provides that –

“The Lenders Handbook does not affect any responsibilities you have to us

under the general law...”

iv)

If the Solicitor had complied with its Bowerman duty, this would have resulted,

inter alia, in a significantly downwards-revised valuation in this case.

There was no reason to allocate responsibility anything other than equally.

Accordingly, it followed that the surveyors were entitled to judgment against

the solicitors for £100,000 plus interest as appropriate.

4) Effect of this Case •

The Bowerman duty does not appear to require the solicitor to conduct

investigations into matters beyond his express duties. The Judge confirmed this

at paragraph 68, where he said -

“It follows that I am satisfied that the Bowerman duty arose in this case. Whether

or not it applies in other cases will, in my judgment, depend upon the source of

the information in question. If the source is not one which the solicitor is required

to obtain or to consider under his express obligations, then I can see the force

of the argument that he cannot be obliged to consider whether or not it has a

material bearing on the valuation so as to give rise to a Bowerman duty.”

•

The Bowerman case involved a sale and simultaneous sub-sale. Such twin

transactions may also create other potential pitfalls, such as –

(i)

Abuse of the sub-sale relief available for Stamp Duty Land Tax,

(ii)

Risk of the sub-buyer failing to complete, leaving the buyer in breach of its

(iii) The risk of money laundering activities or, as in this case, fraud by the

obligations to complete the ‘purchase’ under the main contract; and

borrower (e.g. as to length of ownership and purchase price paid).

•

The E.Surv case came about as a result of a failure to report a significant

discrepancy between the purchase price paid by the borrower a short time

before the remortgage was completed. However, the Bowerman duty could

arguably be extended to other cases where the proprietor has been registered

for more than six months and there is a material difference between the price

paid by him on acquisition and a subsequent sale price or mortgage valuation

(for remortgage purposes).

•

This case had been brought against the solicitor, not by the lender, but by the

surveyor who had settled a negligence action with the lender.

Section 4 Scope of Duty to Report to Lender Matters Potentially Affecting Valuation

1) Background Note to Elmbid and Optima cases The CML Lender’s Handbook provides, at paragraphs 6.7.4 and 6.7.5 – “Where the property does not have the benefit of a scheme under 6.7.1 [this clauses covers approved home warranty schemes] and has been built or converted within the past 6 years check [part 2/specific requirements] to see if we will proceed and, if so, whether you must satisfy yourself that the building work is being monitored (or where the work is completed was monitored) by a professional consultant. If we do accept monitoring you should ensure that the professional consultant has provided the lender’s Professional Consultant’s Certificate which forms an appendix to this Handbook or such other form as we may provide. The professional consultant should also confirm to you that he has appropriate experience in the design or monitoring of the construction or conversion of residential buildings and has one or more of the following qualifications”... A list of eight qualifications then follows. “At the time he issues his certificate of practical completion, the consultant must have professional indemnity insurance in force for each claim for the greater of either: The value of the property once completed; or £250,000 if employed directly by the borrower or, in any other case, £500,000...”.

2) Elmbid Ltd v Burgess [2013] EWHC 1489 (Ch) This case concerned a contract for the sale by Elmbid to the defendant (Mrs Burgess) of land and buildings (the property). At the time of exchange, the buildings on the property were unconverted former barns. The contract provided that the barns would be converted into residential premises and that completion of the purchase would occur on the 10th working day following delivery to Mrs Burgess’ solicitors of the Certificate of Practical Completion (“CPC”). The Completion Date was defined by Special Condition 3.2 as follows: “Completion of the sale and purchase shall take place on the tenth working day following delivery to the Buyer’s Solicitors of the [CPC]”. 34

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The CPC was itself a defined term (Special Condition 1.2): “a certificate to be provided by the Seller’s supervising architect that the Seller’s Works have been satisfactorily completed such certificate to be in the form of the draft sample attached or in such other form as may comply with the requirements of the Council of Mortgage Lenders Handbook”. The court ruled: i)

When determining whether practical completion has been achieved, it may

also be helpful to consider whether the work was finished or done in the

ordinary sense, even though part of it was defective. The existence of defects

does not mean that practical completion has not been achieved but, in

assessing the significance of such defects as there may have been, it is relevant

to take into account the nature of the defects and the proportion between

the costs of rectifying them and the contract price.

ii)

Applying the law to the facts -

•

The only question relating to Special Condition 3.2 was whether the

document that was delivered was the CPC contemplated by

the Contract.

•

The CPC in this case was contractually valid.

•

It was clear that the Contract did not envisage that Mrs Burgess’

obligation to complete the sale and purchase of the Property should

depend on Elmbid proving that the certified event (i.e. practical

completion) had in fact been achieved. The parties had agreed to

complete on provision of a valid CPC, even if the certifying architect was

wrong to have signed it.

•

Clauses 5 and 6 of the architect’s certificate of practical completion

made clear that the certifying architect accepted responsibility to Mrs

Burgess as purchaser and her lender for a period of six years, and the

closing words confirmed that he was insured in respect of any liability to

them, which may arise.

•

In any event, the architect had not been wrong to sign the CPC. Any

outstanding matters did not prevent Mrs Burgess from taking possession of

or using the barns. iii)

Consequently, Elmbid was contractually entitled to forfeit and keep the

£110,000 deposit in accordance with Standard Condition 7.5.2(a)(i). The

circumstances did not of themselves entitle Mrs Burgess to refuse to complete

the purchase of the Property. 36

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3) Hunt v Optima (Cambridge) Ltd [2014] EWCA Civ 714 Optima built two blocks of flats in Peterborough. Optima had engaged architects carry out inspections of the building in the course of development and to produce “Architects Certificates” in respect of the flats for the benefit of the purchasers and their lenders. Before exchange, the purchasers were told that they would be receiving Certificates on completion. The buildings were constructed between September 2002 and December 2003 and the architects carried out some ten inspections of the works, producing to Optima Certificates as to the stage of construction of the flats. S & P (the Architects) also provided Certificates for the purchasers attesting to the satisfactory construction of the flats. However, the building works were carried out badly and the inspections were carried out negligently. As Optima was in administration, and eight of the purchasers sued the architects. On 23 July 2003, an architect sent to Optima’s solicitor at Optima’s request a draft architect’s Certificate for her reference. The Draft Certificate was in the form of the Professional Consultants’ Certificate, as approved by the Lender’s Handbook. 3.1 When were the Certificates issued? The appeal did not include the cases of the third and fourth Claimants to whom the signed architect’s Certificate was executed before the date of the sale agreement between them and Optima; and who, as a result, had been successful in their claim for negligent misstatement against the architects. In respect of the other Claimants who were original purchasers, the signed architect’s Certificate was not provided to the relevant Claimant until after, sometimes long after, the exchange of contracts and the execution of the lease of the flat concerned. However, two of the other Claimants, Mr and Mrs Peace, were not the original purchasers from Optima, having purchased the long lease of the flat just over two years after completion of the original purchase. 3.2 Negligent Misstatement Claim and the Relevance of Reliance The case considered the law relating to negligent misstatement as a result of and following the House of Lords’ decision in Hedley Byrne & Co Ltd v Heller & Co Ltd [1963] 2 All ER 575.

36 38

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The Court of Appeal then ruled that the claims in the tort of negligent misstatement failed because the Certificates post-dated exchange and completion. The relevant factors were that – •

In order to succeed on the claim, those to whom Certificates were negligently

issued would have had to show that they relied upon the negligent

misstatements contained in the Certificates.

•

In this case, the other Claimants could not have relied on the negligent

statements contained the signed Certificate eventually provided to them in

committing themselves to the agreements to purchase because those

statements were not then in existence.

•

Given that reliance must follow representation and cannot be retrospective,

then if the representation was the signed Certificate it cannot be relied on

before it came into existence.

3.3 Was There a Claim under a Collateral Warranty? The question also arose whether alternatively, in favour of the Claimants other than Mr and Mrs Peace, the Certificate could be construed as a form of warranty, which would require an intention to create contractual relations. The Court of Appeal did not regard the Certificate as constituting any form of warranty. The main reasons for this conclusion were that – •

The Certificate was described as such; not as a promise, warranty or guarantee.

It contained no reference to any consideration. For instance, the document

certified that various things had happened and stated various conclusions as to

the state of completion of the property and the standard of its construction.

•

Although the Certificate was to be relied upon by subsequent purchasers,

and the lenders to them, there was no reference to any possible assignment

of obligations. •

The phraseology of the Certificate, taken as a whole, did not amount to

a warranty. •

Furthermore, cl 6.6.5.2 of the 2002 edition of the CML Lender’s handbook

stated, “If we require a collateral warranty from any professional adviser this will

be stated specifically in the mortgage instruction”.

In any event, Mr and Mrs Peace would have been unable to claim the benefit of a collateral warranty in any event because they had purchased from a Ms Smith and therefore had given no consideration for the production of a Certificate that had been issued nearly two years before. 40

3.4 Dual Duty owed? The Court of Appeal rejected the contention that the architects must be taken to have assumed an independent duty to carry out the work of inspection competently, and that the duty was owed to a class of persons consisting of those to whom they issued Certificates, their lenders and subsequent purchasers and lenders. By an “independent duty”, the Court meant a duty independent of that owed contractually to Optima.

4) The Apparent Lessons from this Case when an Architect’s Certificate is issued •

The original purchaser of a new property can only rely on an architect’s

certificate if the original signed certificate is handed over to the purchaser’s

conveyancer before exchange. The draft certificate does not suffice for

this purpose. •

Subsequent owners of the property have no claim in negligent misstatement, as

they have not relied on the certificate.

•

The Professional Consultant’s Certificate, as approved by the Lender’s

Handbook, is a certificate, and not a warranty.

•

The Lender’s Part 2 requirements should be checked on all new build purchases

to see whether the lender does require the benefit of a collateral warranty.

Section 5 Recent Case when One Co-owner Opposes Order for Sale Application

Background Note to Finch v Hall 1) Section 14 TLATA 1996 1.1 On an application for an order under section 14 Trusts of Land and

Appointment of Trustees Act 1996, “the court may make any such order

(a) relating to the exercise by the trustees of any of their functions (including an

order relieving them of any obligation to obtain the consent of, or to consult,

any person in connection with the exercise of any of their functions), or

(b) declaring the nature or extent of a person’s interest in property subject to

the trust, as the court thinks fit.”

However, this should be distinguished from the power of the courts to make property adjustment orders in connection with divorce or final dissolution of a civil partnership (see post). Section 14 does not confer on the courts the rights to adjust property rights . 1.2 The Court has power under section 14(2)(a) of the Act to direct trustees for sale

of land to execute the trust and sell the land.

1.3 Section 14 applies in relation to a trust of proceeds of sale of land and trustees

of such a trust as in relation to a trust of land and trustees of land: s 17(2) & (3).

So, the court may also give directions as to the disposal of the proceeds of sale

to those interested.

1.4 In making an order under s 14, the matters that the court is to have regard to

include:

(a) the intentions of the person or persons (if any) who created the trust,

(b) the purposes for which the property subject to the trust is held,

(d) the interests of any secured creditor of any beneficiary”

to occupy any land subject to the trust as his home, and

(s 15(1) TLATA 1996).

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1.2.5 The Court generally also has to have regard to the circumstances and wishes: (i)

of the beneficiaries entitled to occupy under s 12, or whose entitlement has

been excluded or restricted by the trustees under s 13: this point though applies

only where the application relates to the trustee’s s 13 powers;

(ii)

of any beneficiaries of full age and entitled to an interest in possession in

property subject to the trust or (in case of dispute) of the majority (according to

the value of their combined interests)”: this second point (with one exception)

relates to any other application pursuant to the 1996 Act other than under ss

13 or 14.

1.2.6 The 1996 Act does not confer any priority on any of these factors. In Mortgage

Corporation Ltd v Shaire [2001] 4 All ER 364 Ch D, it was confirmed that, in

addition to the factors which have to be taken into account under s 14, there

may be other factors that the court can take into account. Once the relevant

factors have been identified, the court will then have to decide what weight

should be given to each factor in a particular case.

1.2.7 Different matters have to be taken into account if the application under s 14 is

made by a trustee in bankruptcy (see s 335A Insolvency Act 1986).

2) Finch v Hall [2013] EWHC 4360 (Ch) The four parties to this action had inherited a residential property in accordance with the terms of their father’s will. More specifically, the property had been left by will to be held by the father’s executors. Probate was granted to one of the four siblings, namely Dr Jennifer Finch in 2005. Starting in 2006, the siblings let the property to a succession of tenants. In March 2012, they executed a Declaration of Trust in which they agreed they would each hold the property as tenants in common in equal shares. This was done on or around the same time that the property was registered for the first time in their four joint names. Condition 2 of the Declaration stated that “Any sale of the Property ... must be agreed to by all the Property Owners. The handwritten signatures of both Dr Jennifer Finch and Peter Hall, acting as trustees for all the Property Owners, will be required for any sale or other major commitment to be binding, and it is an essential term of this Agreement that they may sign only if they have received the positive consent of all the Property Owners to their doing so. This paragraph is of fundamental importance and must be brought to the attention of any agent or potential buyer.” 44

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2.1) The Application & Relevant Factors Three of the four siblings sought an order for sale under section 14 of the Trusts of Land and Appointment of Trustees Act 1996. The fourth opposed the application, which had been sought because the two current tenants were close to exchanging contracts on the sale of the property. The Court did not expressly consider the factors set out in section 14, but did state that its decision had to take account of all the circumstances of the case (as would a section 14 application). David Donaldson QC, sitting as Deputy District Judge, in applying the Court of Appeal decision in Buchanan-Wollaston’s Conveyance, Re, Curtis v BuchananWollaston [1939] 2 All ER 302, held that – “The role of the court is to act with rather than against the parties’ agreement. Equity neither compels nor requires any other approach. If there were some development which changed matters significantly compared with the position at the time of the agreement, it may be that this would justify a different result on the basis that the new situation was outside the contractual expectation or what the parties had in mind when they entered into the agreement.”

3) The Effect of Condition 2 Condition 2 did not have the effect of preventing forever the sale of the property without unanimous consent. This was because the agreement in this case had been made immediately prior to putting the property on the market and only a few months before the ‘offer’ was received. Condition 2 was, in the view of the Judge, applicable only to the immediate marketing operation covered by and contemplated by the agreement. Accordingly, the Court refused to order sale of the property without the unanimous consent required by Condition 2. However, were the property to be re-marketed and hence not subject to the agreement, Condition 2 would have had no application and the provisions of the Declaration of Trust would have applied unaffected by it.

4) Observations on the Case •

The Court took into account the intentions of the intentions of the person or

persons (if any) who created the trust, as required by section 14.

•

However, those intentions, as expressed in the declaration of trust, did not

expressly set out the circumstances when Condition 2 would cease to have

effect or where the property could be sold without unanimity being required.

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•

The declaration did not expressly recite that Condition 2 was only applicable

to the immediate marketing operation covered by and contemplated by

the agreement.

•

The declaration did not appear to have any right of pre-emption, or first refusal,

which would have allowed any of the parties who wishes to sell the property to

first offer his or her share to the other siblings and to have required a sale if the

others were unwilling or unable to ‘buy them out’.

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Section 6 Items Left by Borrower in Mortgagee in Possession Sale or Tenant on Sale of Tenanted Property

Background Note to the Da Rocha-Afodu and Campbell cases 1.1 As stated by Bird Lovibond, ‘VACANT POSSESSION – sellers and buyers Beware!’

“Chattels are abandoned only if the owner intends to relinquish ownership and

takes some action of abandonment.”

1.2 Except perhaps where they have been clearly abandoned, a buyer becomes

the involuntary bailee of those chattels that have been left behind by the

borrower/tenant on completion.

There is an obligation on the part of involuntary bailees to do what is right and

reasonable: Scotland v Solomon [2002] EWHC 1886 (Ch), [2003] 1 P & CR D18.

1.3 Chattels Left by Borrower in Repossessed Property The items may be subject to a finance agreement. The mortgagee in

on-site loft or garage. On the issue of whether an involuntary bailee may

possession is not able to transfer ownership of the chattels. One option is to put the unwanted items into an off-site storage facility, or recover storage costs, see ‘Storage Charges – Are They Enforceable?’ Bermans Spring 2007 Briefing, www.bermans.co.uk. 1.4 Sections 12 and 13 Torts (Interference with Goods) Act 1977 Section 12 broadly confers a power of sale on a bailee in respect of goods in his possession or under his control. Before the power can be exercised, as against the bailor, the bailee must (a) have given notice to the bailor of his intention to sell the goods, or (b) have failed to trace or communicate with the bailor with a view to giving

him such a notice, after having taken reasonable steps for the purpose.

The onus is also on the bailee to be reasonably satisfied that the bailor owns the goods.

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On exercising these powers, the bailee is liable to account to the bailor for the proceeds of sale, less any costs of sale. The bailee may also seek a court order under s 13 authorising the sale. The benefit of this is that the net sale process are paid into court; and the court order, subject to any right of appeal, is conclusive, as against the bailor, of the bailee’s entitlement to sell the goods, and gives a good title to the purchaser as against the bailor. 1.5 Two not uncommon scenarios where a person might become an involuntary

bailee in respect of chattels left at a property by someone who has ceased to

reside at that property are –

(a) A mortgagee in possession whose efforts to exercise its power of sale are

thwarted by the borrower leaving a substantial number of chattels in the

property; and

(b) A buy-to-let landlord who is keen but unable for the time being to re-let a

property because a recently departed tenant has likewise failed to take

with them a material number of personal possessions.

2) Two Cases Involving Mortgagees in Possession 2.1 Da Rocha-Afodu v Mortgage Express Ltd [2014] EWCA Civ 454 The appellant borrowers had fallen into mortgage arrears as early as 2005. The mortgagee obtained a warrant for possession in November 2005. The Appellants were finally served with notice of eviction on 4 September 2006, which gave an eviction date of 9 September 2006. The letter accompanying the notice warned the Appellants to arrange “to leave the property with all your belongings before this date and time”. The Appellants did leave the property but left a considerable amount of their personal belongings on the property. On 29 September 2006, the mortgagee’s agents had put up notices at the property stating that if the chattels were not removed within 14 days, the agents would be entitled to dispose of the chattels. Mrs Goodall, an employee of Mortgage Express, noticed that this had been removed. She replaced it with a second notice warning about removal of the chattels if they were not removed within 14 days. One of the Appellants returned to remove some of his possessions on three occasions in October 2006. The mortgagee’s sub-contractor had removed and destroyed the Appellant’s remaining property prior to their fourth visit to the property. 52

2.1.1 The Ruling The Court of Appeal – (i)

Dismissed the appeal against the judge’s order that the Appellants had

been obliged to deliver up vacant possession on execution of the warrant on

29 September. The mortgagee in possession of the property who found itself in

possession of chattels on the execution of a warrant for possession was in law

an involuntary bailee. In that capacity it had been required to do what was

right and reasonable.

(ii)

The court had to ultimately ask whether what the mortgagee did was, in the

particular circumstances of the case, what was right and reasonable.

(iii) The Court considered that the relevant condition in the lender’s mortgage

offer, which was headed “our rights when in possession of the property”, did not

define the steps which the mortgagee had to take or if it did so, it did not do so

in a strict sequential order. Rather, the condition was merely a starting point.

(iv) Taking into account all the relevant circumstances, the mortgagee had

discharged its duty as an involuntary bailee to take all right and reasonable

steps. They had given the Appellants access to their goods on several

occasions. They had given them several warnings that they needed to dispose

of the property. They had offered to provide a house sitter to permit proposals.

The notices had made it clear that if the property was not disposed of, the

agents would be free to dispose of it.

3) Campbell v Redstone Mortgages Ltd [2014] EWHC 3081 (Ch) In June 2008, the mortgagee (Redstone) obtained a possession order in respect of property that had previously belonged to the claimant mortgagor. After years of legal disputes between mortgagor and mortgagee, Redstone eventually obtained a warrant for possession and the bailiffs eventually executed the warrant on 29 January 2014. 3.1 The law applied to this case Mr Andrew Sutcliffe QC (Sitting as a Judge of the High Court), applying the law to this case, found that – (i)

When Redstone enforced the Possession Order on 29 January 2014 and found

that the mortgagor (Miss Campbell) “had made not the slightest attempt to

clear the Property in order to comply with her duty to give vacant possession”

upon the execution of the warrant for possession, it became an involuntary

bailee of the goods left at the Property. 53

(ii)

Its obligation in law as involuntary bailee was to do what was right and

reasonable in the circumstances of the case. In this regard it was relevant

to consider the mortgage conditions and what warnings Redstone gave to Miss

Campbell that it intended to dispose of the chattels on the Property.

(iii) The mortgagor’s tactic of leaving her goods at the Property was a deliberate

one, designed to prevent Redstone from being able to have and give vacant

possession of the Property, and thus impede Redstone’s attempt to market and

sell the Property in order to apply the sale proceeds against

Miss Campbell’s debt.

(iv) When Redstone took possession of the Property on 29 January 2014, it caused

Notices to be affixed to the Property pursuant to the Torts (Interference with

Goods) Act 1977 and its mortgage conditions. The Notices gave Miss Campbell

seven days in which to remove the goods from the Property, otherwise the

goods could be, amongst other matters, disposed of by Redstone. [The Notices

were in this respect consistent with the relevant conditions of Redstone’s

mortgage offer that were applicable in the event of the lender taking

possession.] The Notices also invited the owner of the goods to contact the

agents appointed to market the Property for sale.

(v)

Despite three subsequent court orders requiring Redstone to afford access

to Miss Campbell and others to remove their goods from the Property, Miss

Campbell and others did not remove their chattels from the Property. At no

time did Redstone or its agents take any step which interfered or otherwise

hindered the exercise by Miss Campbell and others of their rights to collect

their chattels. (vi) Accordingly, Redstone was entirely justified in commencing to clear the

Property and dispose of the goods on 1 April 2014, as the goods appeared to

have no intrinsic value, and given the substantial mortgage account in excess

of £730,000. Furthermore, given the amount and different nature of goods left

at the Property, it simply was not feasible for Redstone to put these goods

in storage. (vii) Therefore, Redstone had no liability in damages to Miss Campbell or indeed

any of the other owners of chattels left on the Property.

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Section 7 Sale and Rent back

1) Background Note to Scott v Southern Pacific Mortgages Ltd 1.1 “Sale and rent back is a ... type of property transaction whereby firms buy

homes from individuals, usually at a discount, and then allow those individuals

to stay on in the property as tenants. These deals are often sold to people in

financial difficulty and potentially facing repossession. Sale and rent back firms

often tell consumers that they will be able to stay in their home for years, but in

reality the tenancy is rarely guaranteed for more than six or twelve months”

(quote from paragraph 1.1 of the 2008 Office of Fair Trading report

into the issue).

1.2 Sale and rent back schemes are subject to regulation by the Financial Conduct

Authority (FCA).

In February 2014, the Financial Conduct Authority, which replaced the FSA,

issued its requirements, which include –

•

Ensuring consumers have better security of tenure through a fixed-term

tenancy agreement of at least five years

•

Requiring that firms always check the consumer can afford the deal and it

is right for them

•

Introducing a cooling-off period of 14 days to give consumers more time

to make decisions

•

Ensuring that an independent valuation is carried out where the valuer

owes a duty of care to the consumer in all sales

•

Firms have to meet the FCA’s rules on the amount of capital they hold.

They must also have professional indemnity insurance and effective

systems and controls in place.

•

The FCA’s approved persons regime applies to sale and rent back firms, to

make sure that the individuals involved in the firms are ‘fit and proper’

2) Scott v Southern Pacific Mortgages Ltd [2014] UKSC 52 NEPB purchased 100 homes under a sale and leaseback scheme, funded by mortgages which subsequently fell into significant arrears. The scheme had been inaccurately marketed as a form of equity release. Following completion of the transactions, the sellers had retained occupation of the property under assured shorthold tenancies, after having sold their home to nominees of NEPB. In most cases, the price under the contract represented market value, but the seller had to pay back a lump sum representing a significant portion of the completion monies to NEPB. Exchange and completion took place simultaneously. In many of the cases, NEPB offered to repay to the occupiers part of the lump sum payment if they remained in occupation and paid the rent for a period of 10 years. Each mortgage deed had been executed by the nominees. Each mortgage application form also said that the buyer was seeking a buy-to-let mortgage and that the tenancies granted would be assured shorthold tenancies for a term of six months. Post-completion, the terms actually varied from two years to ten years. The purchasers failed to pay the sums owing under the mortgages. The appeal was against the Court of Appeal ruling that the mortgagees had priority over the right to occupation conferred on the occupiers by NEPB. The Supreme Court dismissed the appeal on the principal grounds that â&#x20AC;&#x201C; (i)

The interest of the purchaser before completion, however it may be

characterised, was not a legal estate.

(ii)

The vendors acquired no more than personal rights against the purchasers

when they agreed to sell their properties on the basis of the purchasersâ&#x20AC;&#x2122;

promises that they would be entitled to remain in occupation.

(iii) It followed that the purchasers had not been in a position at the date of

exchange to confer equitable proprietary rights on the vendors.

(iv) Those rights would only have become proprietary and capable of taking

priority over a mortgage when they were fed by the purchasersâ&#x20AC;&#x2122; acquisition of

the legal estate on completion.

(v)

As a consequence of point (iii), the acquisition of the legal estate and the grant

of the charge was one indivisible transaction, which meant that the vendors

would not be able to assert against the lenders their interests arising only

on completion.

Section 8 Ensuring Full Recovery of Service Charges in Long Residential Leases

1) Background Note on the Morris and Solarbeta Cases 1.1 Where the lease omits to place the landlord under an obligation to provide an

essential service to the tenants, such as the provision of heating or carrying out

of repairs, the landlord might refuse to carry out the service, especially where

there is no right to recover from the tenants the costs of providing it.

1.2 Where the landlord cannot recover the expense of providing a particular

service because the lease does not expressly provide for its recovery, this is bad

news for a landlord who is obliged to provide the service and potentially a

problem for the tenants where the landlord is not obliged to provide an

essential service – landlords cannot always rely sweeping-up (or ‘catch-

all’) provisions to recover the cost of unspecified services, (see e.g. Lloyds Bank

v Bowker Orford ([1992] 31 EG 68), Holding & Management Ltd v Property

Holding & Investment Trust plc [1990] 1 All ER 938, Gilje v Charlgrove Securities

Ltd [2001] EWCA Civ 777). 1.2.1 Lloyds Bank v Bowker Orford [1992] 31 EG 68

One part of the service charge Schedule provided for the recovery of the costs

of maintain two lifts, employing and housing a resident caretaker, cleaning and

(after dark) lighting specified common parts, constant hot water in the

lavatories, and “...any other beneficial services which may properly be

provided by the lessors.”

The Court held that the parties had not intended to include repairs and

decoration of the common parts as an item falling within the term ‘any other

beneficial services’. In doing so, it took into account that the cleaning and

lighting of common parts were expressly covered; and another part of the

lease excluded the landlords’ liability in respect of failure “to cleanse repair

heat or light any part of the building the use of which is granted in common

with others”.

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2) Morris v Blackpool Borough Council [2014] EWCA Civ 1384 In 2002, the appellant acquired a residential flat upon a long lease term of 125 years, pursuant to the right to buy provisions in s 118 and Sch 5 Housing Act 1985. 2.1 The Relevant Provisions of the Lease (Emphasis Added) Clause 3 contained the lessee’s covenant (i)

Subject to the provisions of Sections 18 to 30 of the Landlord and Tenant Act

1985 to pay a proportionate amount to the Council being the reasonable

expenses and outgoings incurred or to be incurred by the Council

(a) in respect of the repairing and maintaining renewing and cleansing as

the case may be of any of the parts of the Reserved Property firstly and secondly described in the Third Schedule hereto

(b) in respect of the provision by the Council of the services mentioned in the

Eighth Schedule hereto

against such rebuilding or reinstatement

(d) in respect of the management costs involved in sub-paragraphs (a) (b) and

collection of other monies due from the Lessee hereunder

The Council’s covenanted in the Eighth Schedule, inter alia, to provide specified services, such as repair and decoration of the ‘Reserved Property’. Paragraph 14 of the Seventh Schedule included the following covenant: “The Lessee shall comply with and observe any reasonable regulations which the Council may consistent with the provisions of this Deed make to govern the use of the Flats and Reserved Property Such regulations may be restrictive of acts done on the Property detrimental to its character or amenities Any costs or expenses incurred by the Council preparing or supplying copies of such regulations or in doing works for the improvement of the Property providing services or employing gardeners porters or other employees shall be deemed to have been properly incurred by the Council in pursuance of its obligations under the Eighth Schedule hereto notwithstanding the absence of any specific covenant by the Council to incur them”.

2.2 The Disputed Demand In April 2011, the Council sent to the appellant tenant an invoice which included a ‘Management Charge’ of £194.78. 2.3 The Question to be Answered The question was whether the management costs of what were described as ‘discretionary services’ (i.e. services which the Council was not obliged to provide but did nonetheless provide for lessees) came within the remit of the Eighth Schedule and were chargeable to the lessee pursuant to clause 3(i)(d). 2.3.1 The Ruling The Court of Appeal held that (i)

The critical issue of construction was the effect of paragraph 14 of the

Seventh Schedule. (ii)

The costs or expenses incurred by the Council under the second part of

paragraph 14 of the Seventh Schedule, in order to be recoverable, were not

reliant on the passing of ‘any reasonable regulations’.

(The said second part is italicised.)

(iii) To hold otherwise would –

•

Ignore the wide application of the second part of paragraph 14, which

made reference to “providing services” and “employing gardeners

porters or other employees”; and

•

Perhaps most importantly, it would fail to give effect to the clear intention

in the last part of the paragraph that the lessee would be under an

obligation to pay for the costs or expenses incurred by the Council in

providing such services, as though it were carrying out its obligations under

the Eighth Schedule, notwithstanding “the absence of any specific

covenant by the Council to incur them.”

(iv) Lady Justice Gloster, with whom McCombe and Jackson LLJ agreed, observed “50. The relevant wording in the second part of paragraph 14 is plain; ... that,

despite the absence of any obligation on the Council to provide the particular

service in question, a discretionary service in fact provided to a lessee would be

deemed to have been properly incurred in pursuance of the Council’s

obligations under the Eighth Schedule, and that such lessee would accordingly

be obliged to pay any management costs involved in their provision, pursuant

to sub-clauses 3(i)(b) and (d) of the lease...” 61

3) Comment on this Case •

The Court in Morris also ruled that the contra proferentem rule (literally:

“everything is to be presumed against the party proffering the document”)

did not apply in this case because the wording of the lease was not so

vague or ambiguous that the court in the present case was unable to reach

a sure conclusion on the material before it, applying the established principles

of contractual interpretation.

•

The decision could be criticised for applying the wording of the second part

of paragraph 14 too widely in the sense that the clause only covered certain

discretionary expenditure, namely –

“Any costs or expenses incurred by the Council preparing or supplying copies

of such regulations or in doing works for the improvement of the Property

providing services or employing gardeners porters or other employees”.

4) Solarbeta Management Company Ltd v Akindele [2014] UKUT 0416, LRX/25/2014 (heard before the Upper Tribunal) 4.1 The Covenant and Its Scope i)

The management company was obliged to “provide such other services

and discharge such other obligations or functions as the Management

Company shall reasonably from time to time consider necessary or expedient

for the use and occupation of the flats in the Buildings and Landlord’s

adjoining premises.”

ii)

Given what the Tribunal called the “remarkable... brevity and apparent width

of the open-textured nature of the Management Company’s obligations ...

and the total absence of any explicit repairing or similar obligations in relation

to the Buildings themselves on the part of the landlord” and the “generic

language” used; the maintenance of the lifts within the building fell within

the Company’s obligations, provided the Management Company reasonably

considered it “necessary or expedient” to do the work to the lifts, or indeed any

other relevant part or parts of the buildings, for the use and occupation of the

flat or flats.

iii)

The Upper Tribunal, taking into account that the Management Company was

“a single-purpose tenant-owned company which ... is obligated to manage the

Estate – to ‘provide and perform the Services’, having “no source of income

other than the Service Charge”, ruled that the Management Company’s

express discretion to “discharge all proper fees salaries charges and expenses

payable to such agents or such other persons who may be managing the

Estate”, was wide enough to cover directors’ expenses.

iv)

Alternatively, the directors’ expenses would have been recoverable under the

obligation to –

“To provide such other services and discharge such other obligations or

functions as the Management Company shall reasonably from time to time

consider necessary or expedient for the use and occupation of the flats in the

Buildings and the Landlord’s adjoining premises

“Such other services or functions as the Management Company shall think fit for

the upkeep and enhancement of the Estate or for the benefit of the

flats thereon”.

5) Comment on Solarbeta •

Practitioners should be wary about treating the Morris and Solarbeta

decisions as binding precedents because a court in another case could

find the circumstances of the case call for a different conclusion based on the

construction of the lease.

•

Nevertheless, both cases are a reminder that the onus is on the landlord

to ensure that any lease it enters into contains provisions that, as far as possible,

exhaustively list the services, both mandatory and discretionary, that the

landlord or other person managing the block are obliged or entitled to supply

to the tenants; and provide for the recovery of each of the heads of expenses

so listed through the service charges.

Section 9 Breach of Trust Claim by Mortgage Lender

1) Background Note on the Mark Redler case •

Clause 10.3.4 of the Lender’s Handbook applied: “You must hold the loan on

trust for us until completion. If completion is delayed, you must return it to us

when and how we tell you.”

•

Section 61 of the Trustee Act 1925 provides a power to relieve a trustee from

personal liability, in the following terms -

“If it appears to the court that a trustee, whether appointed by the court

or otherwise, is or may be personally liable for any breach of trust, whether

the transaction alleged to be a breach of trust occurred before or after the

commencement of this Act, but has acted honestly and reasonably, and ought

fairly to be excused for the breach of trust and for omitting to obtain the

directions of the court in the matter in which he committed such breach, then

the court may relieve him either wholly or partly from personal liability for

the same.”

•

In Nationwide Building Society v Davisons Solicitors (a firm) [2012] EWCA Civ

1626, the Court of Appeal held that s 61 only requires the solicitor (as trustee) to

have acted reasonably. It does not predicate that he has necessarily complied

with best practice in all respects. The requisite standard is that of

reasonableness not of perfection.

2) AIB Group (UK) plc v Mark Redler & Co Solicitors [2014] UKSC 58 This case involved a remortgage that required the redemption of an existing charge in favour of Barclays Bank. AIB had agreed to provide the registered owners within a £3.3 million secured advance. On the day of completion, the solicitors telephoned Barclays for a redemption statement and were informed that approximately £1.23 million was the amount required amount to redeem. The staff member could not recall if they had mentioned any mortgage account numbers during the conversation. The solicitors paid this amount to Barclays on completion and paid the balance of £2.1 million to the borrowers. They had failed to notice that the figure given related to 64

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only one of the two accounts linked to the charge, and so was insufficient to redeem the total amount owing to the bank. Therefore, the Defendant solicitors had acted in breach of trust to the extent that it released to the borrowers the amount of £273,774.42 which was the additional sum required to repay the balance outstanding on the second Barclays’ loan account. 2.1 The Supreme Court’s Decision i)

The Supreme Court rejected AIB’s contention that the Bank was entitled to

payment of the entire £3.3m, less the £867,697.78 net sale proceeds which

it received on the sale of the property, supported by AIB’s further contention

that Redler’s liability for their breach of trust was unlimited by causation

or remoteness.

ii)

The leading judgments were delivered by Lords Toulson and Reed, with whom

Lord Neuberger P, Lady Hale DP and Lord Wilson SCJ agreed.

iii)

Much of the judgments in this case focused on the correct approach to the

assessment of equitable compensation for breach of trust. The Court did not

consider section 61 Trustee Act 1925 as relevant to the case.

iv)

From a conveyancing perspective, the following points are potentially relevant

•

The basic right of a beneficiary is to have the trust duly administered in

accordance with the provisions of the trust instrument, if any, and the

general law: see paragraphs 28 and 64.

•

Lord Toulson, at paragraphs 64, 65 and 73, said -

“64. ... Where there has been a breach of that duty, the basic purpose of any remedy will be either to put the beneficiary in the same position as if the breach had not occurred or to vest in the beneficiary any profit which the trustee may have made by reason of the breach (and which ought therefore properly to be held on behalf of the beneficiary)... “65. To say that there has been a loss to the trust fund in the present case of £2.5m by reason of the solicitors’ conduct, when most of that sum would have been lost if the solicitors had applied the trust fund in the way that the bank had instructed them to do, is to adopt an artificial and unrealistic view of the facts... “73... The basic equitable principle applicable to breach of trust ... is that the beneficiary is entitled to be compensated for any loss he would not have suffered but for the breach. In this case, proper performance of the obligations of which the trust formed part would have resulted in the solicitors paying to Barclays the full

amount required to redeem the Barclays mortgage, and ... the bank would have had security for an extra £300,000 or thereabouts of its loan.” v)

Accordingly, applying the above approach to the assessment of equitable

compensation, the loss to the trust estate as a result of Redler’s breach of

trust proved to be £273,777.42: that amount proved to be the pecuniary value

of the difference between a first ranking security and one which was

postponed to Barclays’. That was also the loss to AIB, who were absolutely

entitled to the trust estate. The trust no longer being on foot, the appropriate

order is for Redler to pay AIB £273,777.42 plus interest from 2011.

Section 10 Receiving Incomplete Replies to Pre-Completion ‘Requisitions’

1) Santander UK plc v RA Legal [2014] EWCA Civ 183 The solicitors in question had acted for Santander on a purchase that completed in 2009 but due to fraud by the seller’s solicitors (who were not a bogus firm), the money was not used to pay the seller or to discharge the seller’s mortgage and the mortgage advance was never subsequently recovered. 1.1 The ‘Replies to Requisitions’ Given Paragraph 4(A) of the Requisitions on Title, headed Mortgages, stated: “Please specify those mortgages or charges which will be discharged on or before completion.” The reply was “MORTGAGE EXPRESS”, a reference to the registered first charge. Sub-paragraph (B) asked: “In respect of each subsisting mortgage or charge: (i)

will a vacating receipt, discharge or registered charge or consent to

dealing, entitling the Buyer to take the property freed from it, be handed over

on completion?

(ii)

If not, will the seller’s solicitors give a written undertaking on completion to hand

one over later?

(iii) If an undertaking is proposed, what are the suggested terms on it?” The reply, apparently addressed to the whole of sub-paragraph (B), was “CONFIRMED”. Sub-paragraphs (c) and (d) of Paragraph 7, headed ‘Completion Arrangements’, asked “(C) In whose favour and for what amounts will the bankers’ drafts be required on completion? (D) Please confirm that you will comply with the Law Society’s Code for the completion by Post (1998 edition).”

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Neither of these questions was answered at all. 1.2 The Court of Appeal’s ruling on a Possible Breach of Trust Briggs LJ delivered the main judgment of the Court of Appeal, Proudman J and The Chancellor concurring, with the latter making some additional observations. R.A. Legal were held to be in breach of trust. This note extracts selected pertinent comments (subheadings added), which are made by Briggs LJ (unless otherwise stated). 1.3 Import of Reply Given to Requisition 4(B) in this Case “70. Staying with question 4, what (objectively speaking) was a reasonable solicitor in R.A. Legal’s position to make of Sovereign’s reply to paragraph 4(B): ‘CONFIRMED’? Close inspection of the document shows that the manuscript reply appears opposite paragraph 4(B)(i), suggesting that a discharge document, rather than a written undertaking, was to be handed over on completion. The absence of any reply to question 4(B)(iii) as to the terms of any suggested undertaking strongly suggests to a careful reader that the undertaking route was not being proposed as an alternative to the immediate provision on completion of a discharge document. Thus, as it seems to me, the effect of Sovereign’s terse reply to Requisition 4(B) should have left a reasonable solicitor in R.A. Legal’s position to expect that an immediately effective discharge of the Mortgage Express prior charge would be ‘handed over’ as part of the process of postal completion on the following day.” The Chancellor rejected R.A. Legal’s contention that the reply ‘Confirmed’ to Requisition 4(B) amounted to an express undertaking by Sovereign that ‘it would hand over a notice of discharge on completion’: see further paragraph 114. 1.4 Function & Adoption of the Completion Code “74. Specifically, paragraph 4 of the Completion Code provides the seller’s solicitor’s undertaking to have the seller’s authority to receive the purchase money on completion, together with the authority of any prior chargee to receive the amount necessary to discharge the charge. Paragraph 6 requires the seller’s solicitors to hold completion monies to the buyer’s solicitor’s order pending completion. Paragraph 10 provides the seller’s solicitor’s undertaking to hold documents to be handed over on completion to the buyer’s solicitor’s order, and to post them as soon as possible after completion, and in any event on the same day, by first class post or DX.” “75. The Completion Code does not however apply automatically in every case of completion by post between solicitors...’”

1.4.1 Was The Completion Code Adopted? “76. In the present case, R.A. Legal neither sought (by crossing box (D)), nor obtained, Sovereign’s agreement to adopt the Completion Code. The completion money was transferred to Sovereign’s client account on 28th July without R.A. Legal imposing any written obligation on Sovereign to hold it to its order, and without receiving Sovereign’s written undertaking to do so, either by the adoption of the Completion Code or in any other written form...” 1.4.2 Effect of Absence of Reply to Requisition 7(D) in this Case “84... R.A. Legal should not have transferred the completion money to Sovereign until Requisition 7(D) had been asked and answered affirmatively... 86... Failure to obtain evidence of Sovereign’s obligation to hold the completion money to R.A. Legal’s order was a serious omission...”

Section 11 Listed Buildings: Enterprise and Regulatory Reform Act 2013 Listed buildings in England: agreements and orders granting listed building consent

Section 60 inserted new sections 26A to 26E into The Planning (Listed Buildings

and Conservation Areas) Act 1990. These provisions apply in England with effect

from 6th April 2014.

1.1 Section 26A and 26B now enable local planning authorities to enter into a

heritage partnership agreement with the owner of a listed building, or a part of

such a building, situated in England.

1.1.1 A heritage partnership agreement may contain provision –

•

granting listed building consent in respect of specified works for the

alteration or extension of the listed building to which the agreement

relates, and

•

specifying any conditions to which the consent is subject.

1.1.2 Such agreement may also, inter alia,

•

specify or describe works that would or would not, in the view of the

parties to the agreement, affect the character of the listed building as a

building of special architectural or historic interest; and

•

make provision about the maintenance and preservation of the

listed building. 1.1.3 A heritage partnership agreement may not make provision for demolition of a listed building. 1.1.4 Listed building consent granted by a heritage partnership agreement (except

so far as the agreement or regulations under statutory instrument otherwise

provide) enures for the benefit of the building and of all persons for the time

being interested in it: section 26B(4).

1.1.5 The Planning (Listed Buildings and Conservation Areas) (Heritage Partnership

Agreements) Regulations 2014, SI 2014/550, in particular require a local planning

authority to publicise its intention to make a heritage partnership agreement

granting listed building consent and to consult English Heritage in

certain circumstances.

1.2 Section 26C confers powers on the Secretary of State to make Listed building

consent orders granting listed building consent in respect of works of any

description for the alteration or extension of listed buildings of any description in

England. The consent may be granted subject to conditions specified in

the order. 1.3 Section 26D confers on the local planning authority for any area in England

to make a â&#x20AC;&#x153;local listed building consent orderâ&#x20AC;?, the effect of which is to grant

listed building consent in respect of works of any description for the alteration

or extension of listed buildings. The consent may be granted subject to

conditions specified in the order. The consent granted by a local listed building

consent order may relate (a) to all listed buildings in the area of the authority or

any part of that area; or (b) to listed buildings of any description in that area or

any part of that area.

1.3.1 The Planning (Local Listed Building Consent Orders) (Procedure) Regulations

2014, SI 2014/551, provide for the procedures connected to local listed building

consent orders and, in particular, make provision as to their preparation and

revocation. They also cover the notice, publicity and public inspection

requirements that apply to local listed building consent orders and make

provision as to consultation.

1.4 None of these provisions apply to listed buildings in Wales, in respect of which

relevant laws and regulations would continue to be made by the

Welsh Assembly.

Section 12 Conservation Area Consents in England

•

With effect from 1 October 2013, demolition of unlisted properties in England

would now require planning permission.

•

The abolition of conservation area consents in England came into effect on 1st

October 2013: see paragraphs 1 to 6, and 12 and 13, of Schedule 17 to the

Enterprise and Regulatory Reform Act 2013.

•

It is now a criminal offence to demolish an unlisted building in a conservation

area in England without planning permission.

•

The transfer of responsibility does not alter the level of protection for unlisted

buildings in conservation areas, however. For instance, local authorities

in England when exercising planning functions with respect to any buildings or

other land in a conservation area, remain obliged to pay special attention

to the desirability of preserving or enhancing the character or appearance of

that area: The Planning (Listed Buildings and Conservation Areas) Act 1990,

section 72(1).

•

Subject to an article 4 direction, where prior to 1st October 2013 an application

for conservation area consent has already been submitted, that application

shall be dealt with under the existing statutory provisions. This is the effect of

Enterprise and Regulatory Reform Act 2013 (Abolition of Conservation Area

Consent) (Consequential and Saving Provisions) (England) Order 2013,

SI 2013/2146.

•

The Town and Country Planning (General Permitted Development)

(Amendment) (England) (No 3) Order 2013, SI 2013/2147 has removed

permitted development rights to demolish unlisted buildings in conservation

areas in England.

•

None of these changes affect the law in Wales with regards to demolition of

unlisted buildings in a conservation area, for which conservation area consent

would still be required.

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