Property Publication Volume 4 by The Solicitors Group

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PROPERTY PUBLICATION VOLUME 4

Celebrating 15 Years of Quality Legal Exhibitions & Training

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Contents...

Foreword Summary of Matters Covered in the 2018 Residential Conveyancing Yearbook ...................... 6

Section 7 Recent Cases on Restrictive Covenants.................. 44 1. Does ‘a’ Mean One?............................................................................ 44 2. Were Covenants Re-imposed on Transfer Back to

Section 1 Money Laundering & Associated Safeguards.... 14

Original Transferor?................................................................................... 45

2. New Money Laundering Regulations................................................. 14

Section 8 Leasehold Reform....................................................................... 48

1. Background Note to the new Money Laundering Regulations...... 14 3. Recent Case Concerning the Money Laundering Regulations...... 17

A. Tackling unfair practices in the leasehold market’.......................... 48

4. Operating Client Account as a Banking Facility .............................. 19

Key Questions Seeking a Response........................................................ 49

5. Error on Law Society’s Find a Solicitor Facility.................................... 21

B. Doubling Ground Rents........................................................................ 51 C. Update on Event Fees......................................................................... 52

Section 2 Is Double Recovery of Service Charges Permitted?......................................................................................... 24

Section 9 Update on Environmental Protection......................... 54

When can Double Recovery Arise?........................................................ 25

Background Note..................................................................................... 54 Law Society Practice Note on Contaminated Land, updated

Section 3 Determining the Proportion of Service Charge Payable by the Tenant of a Dwelling under a Lease................................................................................................. 26

April 2016.................................................................................................... 54

Background Note..................................................................................... 26

Section 10 Updated Law Society Guidance on Transfers at Undervalue................................................................................. 58

Discussiosn.................................................................................................. 28

The Law Society’s Practice Note............................................................. 58

“Other Services and Expenses................................................................. 30

Section 11 VAT on Fees Charged for Electric Searches ....... 60

Discussion................................................................................................... 30

Section 4 Land Transaction Tax and Anti-avoidance of Devolved Taxes (Wales) Act 2017................................ 32 Section 5 Relief from SDLT for First Time Buyers........................... 34 Further Observations on the FTB Relief.................................................... 35 (1) Purchase of a single dwelling............................................................ 35 (2) Purchase Price is not more than £500,000........................................ 35 (3) First Time Buyers intending to occupy the dwelling as a main residence ........................................................................................ 35 (4) Linked transactions: Further Restrictions........................................... 36 (5) Linked Transactions: Further Enquiries............................................... 36 (6) Shared ownership Leases................................................................... 36

Section 6 Recent Cases on Easements............................................. 38 1. Extent of Access to and from the Dominant Tenement................... 38 2. Extent of Recreational Rights Granted............................................... 40 Construction of the Grant........................................................................ 41 3. Right of Access onto Adjoining Land for Ancillary Purposes?......... 42

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Foreword Summary of Matters Covered in the 2018 Residential Conveyancing Yearbook

The 2018 yearbook covers a range of conveyancing issues, including the following (1) New Money Laundering Regulations The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (SI 2017/692) came into force on 26th June 2017. The yearbook considers the regulations relating to customer due diligence measures, when such measures have to be applied, the circumstances when reliance may be placed on a third party to conduct such measures, and the need for appropriate policies, controls and procedures. (1.1) Money Laundering Issues Raised by Recent Cases Pemberton Greenish v Henry: Key features of this case included failure by the defendant consultant Solicitor to carry out adequate personal identity checks against clients, and the failure to record on the firm’s MRA system a material change in risk. Solicitors Regulation Authority v Barrington-Binns: The Respondent solicitor had arranged for the transfers in and out of the firm’s office account of large sums of money, including a remittance to an offshore bank account in Belize. A key issue was whether there had been a sufficient underlying legal transaction for the payments. Law Society of England and Wales v Schubert Murphy: This case concerned whether the Law Society was liable for erroneous entries on its “Find a Solicitor” facility which resulted on a fraud on genuine solicitors.

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(2) Long Residential Leases (2.1) The Court of Appeal decision in Sheffield City Council v Oliver [2017] EWCA Civ 225 considers the extent to which service charge provisions in leases should be construed so as to permit any double recovery by the landlord. The case also considered the circumstances in which double recovery is likely to arise. The Court also considered who has the ultimate say where a residential lease requires a determination to be made by a third party, e.g. where the task of apportioning service charge percentages is delegated to the Lessorâ&#x20AC;&#x2122;s Surveyor. (2.2) Bedford Court Mansions Limited v Ribeiro, Warner: The leases in question provided for a different method of apportioning the service charges if use of rateable values became impractical or impossible. The main issue was whether any alternative apportionment method could only be operated once and whether some formality was required for its operation. The Tribunal also considered the merits and demerits of the chosen system. (2.3) In Amin v Barking Central Management Company (No.2) Limited, the issue was whether certain service charge expenditure related only to one Building or whether it was expenditure in respect of the Development including two other blocks of flats. The Upper Tribunal in answering that question analysed how the relevant provision of the leases divided up the services and expenses, and whether the provision in issue was some form of sweeper up clause. (3) Land Transaction Tax The Land Transaction Tax will replace SDLT in Wales from April 2018. A few brief observations are made regarding the legislation that will introduce this new tax and the extent of its similarity to the tax it is replacing. (3.1) Relief from SDLT for First Time Buyers The government has introduced relief from SDLT from first time buyers, though this measure will cease to apply in Wales as from 1 April 2018 (when the new Land Transaction Tax comes into effect). These materials consider the new rules for first time buyers relief, including the conditions for claiming relief, the potential relevance of the 3% SDLT surcharge on

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purchase of an additional residential property, and restrictions on the availability of relief where the purchase has a linked transaction. (4) Recent Right of Way Cases (4.1) Shaw v Grouby [2017] EWCA Civ 233: This case concerned the extent of a right of way granted for the benefit of the claimant’s property over a private driveway. The issues in dispute were (i) Did the right of way grant access to every part of the property which abutted the driveway or was it limited to the point of access which existed at the date of the transfer? (ii) Was a brick wall which the claimant and her husband built around their property an encroachment and therefore a trespass on the defendants’ property? (4.2) Regency Villas Title Ltd v Diamond Resorts (Europe) Ltd [2017] EWCA Civ 238: Rights had been granted to use existing sporting and recreational facilities. The issues were whether the Claimants were entitled to use of the sporting and recreational facilities as they then existed free of charge; whether the grant was intended to extend to other facilities; whether there was any element of futurity in the words used; and the extent of the land on which the facilities could be enjoyed under those rights. (4.3) The Court of Appeal decision of Gore v Naheed and Ahmed revisited the general principle that it is impermissible to extend a right of way from the dominant tenement onto neighbouring land in order to enlarge the area of the said tenement. However, the right of way would allow access to neighbouring land if use of that land was ancillary to the use and enjoyment of the dominant tenement. The case illustrates that the demarcation between the general principle and this exception is not always clear-cut. (5) Recent Restrictive Covenant Cases The Upper Tribunal in re: Samson’s Application considered the meaning of the term ‘a private dwelling house’ in a restrictive covenant and whether that covenant prevented proposed development.

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In Jones v Oven, the claimants sold and transferred a parcel of land (the ‘Parcel’) which included a 4-metre strip subject to restrictive covenants. In dispute was whether those covenants would apply to the Strip if it were transferred back to the claimants because something had gone wrong with the drafting of those covenants. (6) Leasehold Reform In July 2017, the Department for Communities and Local Government issued a consultation paper, ‘Tackling unfair practices in the leasehold market’. This consultation applied to England only. Brief consideration is given to the proposals to limit the reservation and increase of ground rents on all new residential leases granted for a term of more than 21 years, and to exempt long leaseholders from the risk of becoming subject to a ‘Ground 8’ possession order for non-payment of rent (i.e. because they are assured tenants). The note also considers the Law Commission report on ‘Event Fees in Retirement Properties’, though it is unclear if this issue will be included in future government legislative proposals. (7) Contaminated Land In Powys County Council v Price & Hardwick, the Court of Appeal had to determine whether a local authority (Powys) was liable as an “appropriate person” under Part IIA of the Environmental Protection Act 1990 in respect of the actions of its predecessor, in relation to a contaminated landfill site. (8) Making Gifts of Assets The Law Society’s Practice Note ‘Making gifts of assets’ was updated in March 2017. The Note expressly covers the situation where a Solicitor is instructed by a client seeking advice about transferring property by way of gift or at a significant undervalue. (9) VAT Chargeable for Electronic Searches In Brabners LLP v The Commissioners for Her Majesty’s Revenue & Customs, the Firsttier Tribunal (Tax Chamber) determined the proper VAT treatment of the charges made for electronic searches (but not for local searches conducted by post or personal searches).

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Section 1 Money Laundering and Associated Safeguards

1. Background Note to the new Money Laundering Regulations UK Finance Mortgage Lenders’ Handbook for conveyancers includes the following requirements “3.1 Safeguards for solicitors” … “3.1.2 You must follow the rules and guidance of your professional body relating to money laundering and comply with the current money laundering regulations and the Proceeds of Crime Act 2002 to the extent that they apply and you must follow other relevant guidance, for example, the Law Society of England and Wales mortgage fraud practice note; the Council for Licensed Conveyancers’ Acting for Lenders and Prevention of Mortgage Fraud Code and Guidance, and take account of relevant regulatory warning notices.” “3.2 Safeguards for licensed conveyancers … 3.2.2 You must follow the professional guidance of the Council for Licensed Conveyancers relating to money laundering and comply with the current money laundering regulations and the Proceeds of Crime Act 2002 to the extent that they apply and you must follow all other relevant guidance issued by the Council for Licensed Conveyancers.”

2. New Money Laundering Regulations The Money Laundering Regulations 2007 and subsequent amendments thereto have been replaced by the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (SI 2017/692).

(The Regulations should be read together with the Law Society’s updated draft guidance, which was issued in September 2017.) Key provisions for conveyancers to pay attention are Customer due diligence measures – Reg 28 Regulation 28(2) stipulates the required “customer due diligence measures” as being to: “(a)

identify the customer unless the identity of that customer is known to,

and has been verified by, the relevant person;

(b) (c)

verify the customer’s identity unless the customer’s identity has already been verified by the relevant person; and assess, and where appropriate obtain information on, the purpose and intended nature of the business relationship or occasional transaction.”

Reg 27 - Customer due diligence “(1) A relevant person must apply customer due diligence measures if the person (a)

establishes a business relationship;

(b)

carries out an occasional transaction that amounts to a transfer of funds …

exceeding 1,000 euros;

(c)

suspects money laundering or terrorist financing;

(d)

doubts the veracity or adequacy of documents or information previously

obtained for the purposes of identification or verification.

… (8)

A relevant person must also apply customer due diligence measures -

(a)

at other appropriate times to existing customers on a risk based approach;

(b)

when the relevant person becomes aware that the circumstances of an

existing customer relevant to its risk assessment for that customer

have changed.”

Reg 39 Reliance Reliance can be placed by a relevant person (‘A’) on another relevant person (‘B’) to conduct CDD measures on their behalf. However, A is ultimately liable for any failure by B to carry out the required CDD measures. The term ‘relevant person’ includes Solicitors, licensed conveyancers, auditors, estate agents, insolvency practitioners, external accountants and tax advisers. Reg 19 Policies, controls and procedures A relevant person must establish and maintain policies, controls and procedures to mitigate and manage effectively the risks of money laundering and terrorist financing identified in any risk assessment undertaken by the relevant person: Reg 18(1). These include policies, controls and procedures: “(a) (i) (aa)

which provide for the identification and scrutiny of any case where a transaction is complex and unusually large, or there is an unusual pattern of

transactions, and (bb)

the transaction or transactions have no apparent economic or legal purpose,

and (ii) (b)

any other activity or situation which the relevant person regards as particularly likely by its nature to be related to money laundering or terrorist financing; which specify the taking of additional measures, where appropriate, to

prevent the use for money laundering or terrorist financing of products and

transactionswhich might favour anonymity;…”

3. Recent Case Concerning the Money Laundering Regulations Pemberton Greenish v Henry [2017] EWHC 246 (QB) In October 2010, the defendant acted for a client called Indonor Consultants Limited, (“Indonor”), of which a Mr Lloyd-Cooper was a director, when the sum of £97,119.17 was transferred from Indonor’s previous solicitors to the claimant’s client account, and, thereafter, between 6th October 2010 and 29th March 2011, sums between £16,307.00 and £38,400.00 were paid out to either “Miss M Henry” or “Hamad Al Reyaysa”, in respect of outstanding fees, or by way of short term loans. In the meantime, the defendant had rendered an invoice in the sum of £960.00 to Indonor in respect of the claimant’s legal services. Mr Lloyd-Cooper was the defendant’s partner and also a former solicitor-partner at the law firm Kennedys LLP. The Solicitors Disciplinary Tribunal found that the Defendant had committed a disciplinary offence relating to her handling of the Indonor matter, in that there was no evidence that there was any underlying legal work to justify the receipt or payment out of Indonor’s funds. The SDT further found that the Defendant had failed adequately, or at all, to carry out personal identity checks and the required anti-money laundering checks on a client(s) (Mr and Mrs Kingston). In particular, the defendant had failed to carry out any identity checks upon Mr Kingston, and her collective failure to notice various discrepancies in the passport and bills provided in relation to Mrs Kingston amounted, inter alia, to breaches of the Money Laundering Regulations 2007. The original transaction which was envisaged between Mr and Mrs Kingston and Stonebridge (a commercial lender) was a secured loan agreement, and this was a straightforward financial transaction for the purposes of the firm’s ‘Matter Risk Assessment’ (MRA) system. However, on 22nd December 2011, the defendant was informed that this transaction was not proceeding, and that the alternative proposed transaction was a deferred sale agreement between the Kingstons and another company (Landsdown Asset Management Limited). [Under the deferred sale agreement, the proposal was for the Kingstons would sell the London property to Lansdown for the sum of £900,000.00, but would have the ability to terminate the sale, inter alia, on repayment of the sum

of £500,000.00 which was to be advanced to them by way of a deposit, together with a further sum of £50,000.00 within 2 weeks of exchange of contacts.] It subsequently turned out that the clients had been impersonating the real Kingstons. The High Court found that – (i)

From the commencement of the defendant’s dealings with the Kingstons, the

claimant had two clients, rather than one. In these circumstances, the

defendant ought to have instructed her secretary to open a file in their

joint names, and to enter both of their names into the firm’s AML system. If this

had been done, then the lack of documentary identification evidence

available for Mr Kingston would have become apparent, and would

have been likely to have led to the matter being referred within the AML

system. These omissions amounted to breaches of regulation 5 of the Money

Laundering Regulations 2007 (which set out the customer due diligence

measures required at the time).

(ii)

The documentary evidence with which the defendant was provided by Mr

Kingston at their first meeting on 15th December 2011, included his wife’s

passport and two bills relating to a London investment property. The High Court

found that the fact the bills related to the Kingstons’ property in London,

rather than their main home, did not appear to be of particular concern.

Moreover, it would be overly harsh to criticise the defendant for not having

noticed that there was a single digit difference between the two numbers

appearing on the passport.

(iii)

In relation to the council tax bill, the anomalies on the face of the document

ought to have been evident to a solicitor taking reasonable care to consider

its sufficiency for the purposes of verifying the Kingston’s connection with the

property. These being not only the provision of a single person’s discount,

but also the payment of instalments in cash relating to a different time period

Once again, this amounted to a breach of regulation 5 of the Money

Laundering Regulations 2007.

(iv)

Neither transaction was a complicated financial transaction for the purposes

of the MLR, despite the risk (in the case of the deferred sale agreement) that

ownership of the London property might have been transferred to Lansdown

at a substantial undervalue. However, when the defendant received

the Kingstons’ instructions, on 22nd December 2011, that the monies (i.e. the

£500,000) were to be paid to third parties, this should have been re-registered

on the claimant’s MRA system to record the proposed payment. Moreover, as

the risk involved in payments to unknown third parties was one which lies at

the heart of the anti-money laundering provisions, the defendant’s failure

to re-register this matter amounted to a breach of regulation 8 of the Money

Laundering Regulations 2007 (which imposed a duty to conduct ongoing

monitoring of a business relationship).

4. Operating Client Account as a Banking Facility Solicitors Regulation Authority v Barrington-Binns, Case No. 11523-2016 [Date of hearing 7 March 2017] The Respondent was a sole practitioner and an experienced solicitor. On 22 November 2013, her Firm received £1.3 million into the office bank account, apparently from the ‘A Foundation’. On 2 December 2013, this amount was transferred from the office bank account to an “undesignated client account” in the name of the Firm. On 31 January 2014 the sum of £1,269,725 (i.e. the £1.3 million minus the Firm’s legal fees) was transferred back to the office bank account from the undesignated bank account, and on the same day this amount was transferred to A Foundation’s offshore bank account with the Belize Bank International Limited (BBIL) in Belize. [The Respondent later accepted she should not have received the entirety of the £1.3 million into her account (other than the fees for legal work) or transferred £1,269,725 to BBIL.] On 10 June 2014 the Respondent transferred £235,000 to CFS on the instruction of DG. She later acknowledged that at the time she failed to give proper consideration to whether there was a sufficient underlying legal transaction for that payment. [It appeared that the £1.3 million had originally been held by CFS, as evidenced by the CFS “ledger” account statement in the name of AS and M Limited.]

The Respondent claimed that she had no knowledge of the activities of CFS and that she was just following her client’s instructions. She asserted that she knew CFS was a company related to DG although she had not seen any documentary evidence to establish that. She also confirmed that CFS was not a client at the time the Firm received the monies. The Solicitors Disciplinary Tribunal ruled that (i)

The Respondent failed to give proper consideration was to whether there

was an underlying legal transaction for the receipt of £1.3 million into her client

bank account and the transfers of £1,269,725 to a bank account in Belize.

(ii)

The transfer of £235,000 to her client was made without proper consideration

as to the underlying transaction.

(iii)

The Respondent allowed her bank account to be used as a banking facility

by her client, Mr DG.

(iv)

The Respondent failed to give consideration as to why DG could not have

received the monies into his bank accounts, and why he could not have

directly transferred the money to the bank in Belize. She should have exercised

greater caution when being involved in a transaction involving such a large

sum of money being transferred out of the jurisdiction.

(v)

The Respondent facilitated the payment of £1,269,725 to the bank in Belize

and failed to be alert to the suspicious features of the transaction, which

included the monies being received from a CFS rather than directly from her

client, money being transferred out of the jurisdiction and the absence of a

bank statement showing where the money had come from.

(vi)

The Respondent failed to take adequate steps to establish the source of the

£1.3 million. She failed to obtain documents from DSG as to the provenance

of the monies and the source of his wealth.

(vii)

The Respondent did not have sight of any of the company records

establishing a link between DG and CFS or AS and M Ltd. At the time of the

transfers the Respondent did not give proper regard to whether CFS was a

client of the Firm.

(viii)

Although the Respondent had not been charged with a criminal offence, she

may have unwittingly facilitated the movement of monies during the course

of a suspected pension fraud by her clients.

(ix)

The SDT ordered Ms Barrington-Binns’ suspension from practice for 12 months

and that thereafter she would have to be subject to restrictions.

5. Error on Law Society’s Find a Solicitor Facility Law Society of England and Wales v Schubert Murphy (a firm) [2017] EWCA Civ 1295 Schubert Murphy searched on the Law Society’s “Find a Solicitor” facility to determine the status of a Mr John Dobbs and a firm, “Acorn Solicitors”. The response confirmed that both existed, when in fact neither did. Schubert Murphy was the victim of a fraud. It had transferred the purchase price to a fraudster in reliance on a purported solicitor’s undertaking to discharge the vendor’s mortgage over the property. The fraudster absconded with the funds without discharging the mortgage. The Court of Appeal upheld the High Court’s discretionary decision that the issue of the Law Society’s liability deserved a trial. It did so for the following reasons 1.

Making information available through the FAS facility was arguably an

additional step going beyond the Law Society’s regulatory function, and thus

providing an additional but voluntary service which is more akin to marketing.

It was therefore arguable that, depending on a fuller consideration of the

facts, the Law Society specifically assumed responsibility in relation to the

information provided by using the facility, to prevent a third party from

causing damage to the claimant by the third party’s own

deliberate wrongdoing.

On the material before the court, the FAS facility appeared to actively

encourage use of solicitors rather than other conveyancers.

In addition to consideration of the wider purpose of the search function, a full

factual inquiry into the way the website works and the specific relationship

between the Law Society and Schubert Murphy was necessary. It was

necessary to consider what the Law Society in fact does and the extent to

which it could identify an individual user of the FAS facility. 21

There was also the question whether, even if there was no duty to the world

at large, there was a sufficient nexus between the Law Society and

conveyancing solicitors as a group because of the advice about the problem

of fraud in conveyancing transactions.

It was necessary for the court to undertake a full factual inquiry into the

consequences of the imposition or not of a duty on the Law Society’s use of

this function, in particular the implications for the security of current

conveyancing practice. A full trial was a more appropriate forum for

determining questions such as the potential cost to solicitors who suffer losses

in reliance on the incorrect information provided by the Law Society’s FAS

facility, and whether the effect of an absence of a duty of care would be

materially to increase the cost of their professional indemnity insurance.

It could not be said that that there was no prospect of showing that the Law

Society’s response involved a representation to the effect that Mr Dobbs and

Acorn were a genuine firm and a genuine solicitor.

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LAW2019 Learning.

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The UKâ&#x20AC;&#x2122;s leading legal roadshow returns. Join us for even more learning, networking and sourcing.

WE LOOK FORWARD TO SEEING YOU IN 2019 Book your conference today and benefit from the Early Bird rates visit:

thesolicitorsgroup.com UPCOMING EVENTS: BIRMINGHAM: 26 & 27 Feb 2019, Holiday Inn, Birmingham Airport LEEDS:

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Section 2 Is Double Recovery of Service Charges Permitted?

Sheffield City Council v Oliver [2017] EWCA Civ 225 In this case, the council was the freeholder of 40 estates, which consisted of some 1,000 flats and maisonettes. Ms Oliver had purchased her two-storey maisonette in 1989 under the Right to Buy. The lease provided that – “The Service Charge payable by the Lessee shall be a fair proportion to be determined by the City Treasurer or other duly authorised office of the Council …” The council sought to recover the costs of major refurbishment of the Estates from the long leaseholders through the service charges. However, in doing so the Council had not deducted the substantial funding it had received under the ‘CESP’ scheme which was referable to those refurbishment works. The Court of Appeal agreed with Counsel for Ms Oliver that the correct starting point was that – “The parties to the Lease could not sensibly be thought to have made provision for the levying of a service charge which permitted any double recovery by the Council in relation to the cost of carrying out relevant works. The service charge provisions in the Lease must therefore be construed so as to achieve the objective of preventing double recovery.” In doing so, the Court of Appeal has established a general principle that, when quantifying a service charge payable by a lessee under a long lease of residential property, credit must be given by the lessor in respect of a third-party contribution towards the cost of carrying out repairs and improvements to the property, so as to avoid any element of double recovery by the lessor.

When can Double Recovery Arise? The Court observed that the prospect of double recovery (if service charge proportions are determined without giving credit for third party funding) could arise – (i)

Where the landlord receives a payment towards the cost of major works (e.g.

the payments made in this case under the CESP scheme),

(ii)

If the council receive payments pursuant to a claim on a block insurance

policy taken out pursuant to the Lease, at the Lessees’ joint expense, or

(iii)

If the landlord were to “receive payment against the carrying out of works

falling within its repairing covenant from an original builder of the Block under

a guarantee, from the employers or insurers of the driver of a heavy goods

vehicle which crashed into it, or by way of damages from someone

committing malicious damage.”

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Section 3 Determining the Proportion of Service Charge Payable by the Tenant of a Dwelling under a Lease

Background Note Subsections (1) and (3) of section 27A Landlord and Tenant Act 1985 confer on the appropriate tribunal the jurisdiction to rule on the payability of service charges by the tenant of a dwelling, whether for costs incurred or on account of costs to be incurred. Section 27A(6) of the 1985 Act further provides that – “(6)

An agreement by the tenant of a dwelling (other than a post-dispute

arbitration agreement) is void in so far as it purports to provide for

a determination –

(a)

in a particular manner, or

(b)

on particular evidence,

of any question which may be the subject of an application under subsection (1) or (3).” Section 27A(4) further provides that ‘No application under subsection (1) or (3) may be made in respect of a matter which (a)

has been agreed or admitted by the tenant…”

Sheffield City Council v Oliver [2017] EWCA Civ 225 - continued The Court of Appeal in this case upheld the principle that the apportionment of service charge percentages carried out by the Lessor’s Surveyor or (in this case) the Council’s appointed officer, as irrelevant. This was because such an apportionment falls foul of s.27A(6) Landlord and Tenant Act 1985.

The result was that the Court of Appeal in this case was obliged to determine the fair proportion of the Council’s costs incurred to be levied as a service charge upon Ms Oliver, without having first to conclude whether the Council’s apportionment was unfair or unreasonable. [By contrast, where a particular determination is the only possible consequence of the application of an agreed formula, that would not infringe s 27A(6) because the precise amount to be paid has been determined by the parties’ agreement: see s.27A(4)(a).] Bedford Court Mansions Limited v Ribeiro, Warner and others [2017] UKUT 0202 (LC), LRX/116/2016 The leases of flats in a large Victorian block were granted in 1989. Clause 4(c)(iv) of the leases provided for how the total relevant service charge expenditure was to be apportioned to the various flats in the building and to be recovered from the lessees of those flats. The said clause read as follows: “(a) The annual amount of the service charge payable by the Lessee as aforesaid shall be calculated by dividing the Lessor’s actual and anticipated expenditure defined in accordance with sub-paragraph (c)(i) hereof for the year to which the said certificate relates by the aggregate of the rateable values in force at the end of such year of all the flats in the said Mansions and then multiplying the resultant amount by the rateable value in force at the same date of the Flat. (b) In the event that it shall become impractical or impossible to apportion the Lessor’s actual and anticipated expenditure between all the Flats in the said Mansions on the basis of relative rateable values the same shall instead be apportioned on such alternative basis as shall be fair and equitable.” It had previously been decided by the F-tT that, as no rateable values were “in force” after 1990, it had after 1990 become impractical and impossible to apportion the appellant’s relevant expenditure between all the flats in the building on the basis of relative rateable values. In consequence the appellant could no longer apportion the relevant expenditure on the basis of paragraph (a). After 1990, five new flats were created at the building and a further four units had been converted from purely commercial purposes to residential use some years.

The tenant-owned management company initially chose to allocate some form of “stand-in” value in place of the non-existent rateable value each time one of these new units came into existence. A further ad hoc and practical amendment to the apportionment system was then introduced by way of settlement of litigation between the appellant management company and one of the lessees. In May 2008 an extraordinary general meeting of the appellant resulted in a resolution that further adjusted the service charge proportions paid by the lessee of each flat. The appellant did thereafter charge the lessees with service charge contributions (which were paid) on this ‘2008 basis’. In July 2015, another extraordinary general meeting of the appellant was held and the ensuing resolution resulted in yet another adjustment to the service charge proportions paid by the lessee of each flat. The appellant did thereafter charge the lessees with service charge contributions (which were paid) on this ‘2015 basis’.

Discussion The main issue to be decided was whether paragraph (b) could only be operated once and whether some formality was required for its operation. Therefore, the Upper Tribunal had regard to the principles of construction set out in Arnold v Britton [2015] UKSC 36 by the Supreme Court. The Upper Tribunal held that •

The wording of paragraph (b) did not require the alternative basis of

apportionment to be same basis of apportionment as had been used in some

previous year.

•

From 1991 onwards, the appellant was entitled to continue to apportion

the expenditure upon a list of percentages which as closely as possible

reflected the previous apportionments which had been made in the most

recent year to which paragraph (a) of clause 4(c)(iv) applied. The appellant

was entitled to make appropriate judgments as to how to adjust these

percentages based upon the advent of some new residential flat in the

building. The appellant, by acting in this manner, was validly apportioning the

expenditure between the flats upon a fair and equitable basis and was

therefore validly operating paragraph (b) of clause 4 (c)(iv).

•

The 2008 basis of apportionment had been fair and equitable, despite the

fact that any such basis may well have given rise to anomalies and in

particular may give rise to flats of lesser amenity value paying less per square

foot than flats of greater amenity value.

•

The lease did not purport to make a decision as to what was the fair and

equitable basis of apportionment.

•

As confirmed by Sheffield City Council v Oliver, it was for the F-tT to determine

the fair and equitable apportionment of the relevant costs without first having

to conclude that the appellant’s apportionment (as contained in the 2015

basis) was unfair or unreasonable.

•

The Upper Tribunal upheld the F-tT’s decision that the 2008 basis was the

correct basis for the apportionment of the on-account service charges for

the year commencing 29 September 2015. See further the 17 reasons for the

Upper Tribunal’s conclusion, as set out in paragraph 85 of its judgment.

Amin v Barking Central Management Company (No.2) Limited [2017] UKUT 0232 (LC), LRX/121/2016 The appellant held a long lease of her flat and the respondent company was a party to the lease as the company responsible for providing services etc and recovering the service charges. The lease identified “the Building” as 87 Axe Street, which contained her flat. The lease also referred to “the Development”. The lease defined “the Development” as meaning “the development of the flats within the land”, but did not separately define what was meant by “the land” or what other flats beyond those in the Building are being referred to. [The Upper Tribunal in Redrow Regeneration (Barking) Limited v Edwards [2012] UKUT 373 (LC) previously concluded that the Development extended to more than just the Building itself and included two other buildings, the Bath House and the | Lemonade Building.] The lessee was obliged to pay “0.51% of the Material Charges [i.e. service charges]

relating to the Building and the Development (or such other proportion as may be determined pursuant to clause 6 of the Sixth Schedule).” The previous decision did not decide how to calculate the total of the expenditure to which the relevant percentage should be applied for the purpose of calculating the appellant’s liability to pay service charge. The respondent Company was subject to a number of obligations contained in the Seventh Schedule to the Lease, which included a covenant for the repair of the Building (excluding the flats) in paragraph 1, paragraph 10(a), which was in the following terms –

“Other Services and Expenses 10. (a) To carry out all repairs to any other part of the Development and the parking spaces for which the Company may be liable and to provide and supply such other services for the benefit of the Tenant and other tenants of the flats in the Development and to carry out such other repairs and such improvements works additions and to incur such other costs (including the modernisation or replacement of plant and machinery) as the Company shall consider necessary to maintain the Development and the parking spaces to a good class residential standard.”

Discussion The Upper Tribunal applied the principles of construction of contracts as recorded in Arnold v Britton [2015] UKSC 36. Huskinson J then held that paragraph 10(1) could properly be divided into four portions, so that. “47. …the respondent was obliged to provide the following other services and expenses (and was entitled to charge for the same through the service charge) namely: (i)

To carry out all the repairs to any other part of the Development and the

parking spaces for which the Company may be liable;

(ii)

To provide and supply such other services for the benefit of the Tenant and

other Tenants of the flats in the Development...as the Company shall consider

necessary to maintain the Development and parking spaces to a good class

residential standard;

(iii)

To carry out such other repairs and such improvements works additions ...

as the Company shall consider necessary to maintain the Development and

the parking spaces to a good class residential standard;

(iv) To incur such other costs … as the Company shall consider necessary to

maintain the Development and the parking spaces to a good class

residential standard.”

The Tribunal continued that •

Paragraph 1 of the Seventh Schedule imposed an express obligation upon the

respondent to repair and decorate etc the Building.

•

Paragraph 10(a) referred to “repairs to any other part of the Development

and the parking spaces”. Repairs of the other two buildings in the

Development were repairs “for which the Company may be liable”.

•

The provision referred to in subparagraph 47 (i) above was not concerned

only with one-off and unexpected expenses of a kind different from those

covered in the previous provisions of the Seventh Schedule.

•

Paragraph 10(a) was a self-standing and important part of the Seventh

Schedule. It was not some form of sweeper up clause.

Therefore, the Tribunal concluded that the Material Charges, in respect of which the appellant was required to pay her relevant percentage, included expenditure upon carrying out repairs (for which the respondent was liable) to other parts of the Development, which included the Lemonade Building and the Bath House. They also included expenditure upon the other matters referred to in the second, third and fourth portions of paragraph 10(a), notwithstanding that this expenditure may be expenditure made upon parts of the Development other than the Building, in so far as these were matters that the respondent considered necessary to maintain the Development and the parking spaces to a good class residential standard.

Section 4 Land Transaction Tax and Anti-avoidance of Devolved Taxes (Wales) Act 2017

It is beyond the scope of this note to consider the Land Transaction Tax (LTT), which replace SDLT in Wales from April 2018. However, a few brief observations are made regarding the legislation that will introduce this new tax. The method of calculating the LTT due will be similar to that used for SDLT (i.e. a banding or marginal, rather than a slab, rate system will be adopted). The Welsh Ministers have set at least six ‘progressive’ LTT bands. By contrast with SDLT, the vast majority of new residential leases in Wales will pay no tax on the rental element. The Bill also contain a number of LTT reliefs, such as – (i)

‘Transactions entered into before completion of contract’, (which provides

relief to intermediate buyers where they transfer the rights under a contract

prior to completion or under a free-standing transfer);

(ii)

Multiple Dwellings relief;

(iii)

Special rules that will apply to shared ownership leases;

(iv)

Relief on the transfer of property from a person to a limited liability partnership

in connection with its incorporation;

(v)

A similar 3% surcharge on the purchase of additional residential properties,

subject to relief where the purchase is or is deemed to replace a

main residence.

(vi)

Collective enfranchisement, where the consideration is divided by the number

of flats and tax is to be based on these notional individual interests.

The Act contains a general anti-avoidance rule as well as several anti-avoidance provisions, which will include the use of LTT reliefs to avoid tax. However, there will be no 15% rate on the purchase of residential property by a non-natural person. Where land acquired is partly in Wales and partly in England, then the consideration for the transaction is to be apportioned between those two transactions on a just and reasonable basis: see section 9.

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Section 5 Relief from SDLT for First Time Buyers

The government has introduced relief from SDLT from first time buyers, though this measure will cease to apply in Wales as from 1 April 2018 (when the new Land Transaction Tax comes into effect.] The new rules are contained in Schedule 6ZA which will be inserted into the Finance Act 2003. The relief applies where: •

there is a purchase of a major interest in single dwelling,

•

the purchase price does not exceed £500,000,

•

the purchaser or, if there is more than one, each of them, is an individual,

•

the purchaser or, if there is more than one, each of them, is a first time buyer,

who intends to occupy the dwelling as their only or main residence,

•

the effective date of the transaction is on or after 22 November 2017, and

•

the purchase is not linked to any other land transaction, except for a

transaction whose main subject-matter of the transaction consists of –

(a)

an interest in land that is or forms part of the garden or grounds of the

purchased dwelling, or

(b)

an interest in or right over land that subsists for the benefit of –

(i)

the purchased dwelling, or

(ii)

land that is or forms part of the garden or grounds of the purchased dwelling.

•

in the case of a transaction which is linked to another transaction falling within

cases (a) or (b) in the preceding bullet point, the further restrictions set out in

point 4 below do not apply.

Further Observations on the FTB Relief (1) Purchase of a single dwelling Relief is unavailable if two or more dwellings are acquired in a single transaction. A self-contained part of a building is generally classified as a separate dwelling (e.g. a self-contained annexe). Relief is not available if the purchase is caught by the 3% SDLT surcharge under Schedule 4ZA FA 2003 (additional residential properties). The relief is only available to the purchase of a single dwelling. The definition of “dwelling” is broadly similar to that employed in the Finance Act 2003 in the context of SDLT (e.g. for the purpose of the 3% surcharge). A purchase of a lease with a residue of less than 21 years from the effective date, is not a major interest.

(2) Purchase Price is not more than £500,000 Where relief is available, the first £300,000 of the purchase price is exempt from SDLT, though 5% is chargeable on the amount of the purchase price which exceeds £300,000 up to a maximum of £500,000).

(3) First Time Buyers intending to occupy the dwelling as a main residence Only individuals can qualify as first time buyers. A person is not a first time buyer if they have previously acquired a major interest in a dwelling situated anywhere in the world (including where the person is a beneficiary under a trust of land consisting of a dwelling). However, a person can be a first time buyer if they own a major interest in non-residential property (including mixed-used property) which does not include a dwelling. The purchaser or, if there is more than one, each of them, must intend to occupy the dwelling as their only or main residence. If any purchaser or joint purchaser plans to defer entry into occupation as a main residence until after completion, consideration must be given as to whether that would be consistent with such an intention.

(4) Linked transactions: Further Restrictions The further restrictions on the availability of the relief (as previously mentioned) are that 4.1 In the case of linked transactions falling within the aforesaid cases (a) and (b); relief may not be claimed if the purchaser, or (if more than one) any of the purchasers in relation to a chargeable transaction is not also a purchaser in relation to the linked transaction. 4.2 Where a transaction is linked to other transactions and the sum of the chargeable consideration for all the linked transactions exceeds ÂŁ500,000, none of the transactions would qualify for relief. This rule applies irrespective of whether the linked transaction happens on, prior to or after the same day as the purchase of the dwelling.

(5) Linked Transactions: Further Enquiries Conveyancers therefore need to establish whether there has been a previous transaction (including any prior to 22 November 2017) which is linked to the purchase. Furthermore, a linked transaction which occurs after the effective date of the purchase of a dwelling that qualified for first time buyer relief could deprive, with retrospective effect, the purchaser or purchasers of the relief so claimed.

(6) Shared ownership Leases Relief can only be claimed in respect of the grant of a shared ownership lease where the first time buyer has made a valid market value election. In any other case, relief cannot be claimed (e.g. in respect of any staircasing above 80%).

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Section 6 Recent Cases on Easements

1. Extent of Access to and from the Dominant Tenement Shaw v Grouby [2017] EWCA Civ 233 The two main issues in this case concerned the extent of a right of way granted for the benefit of the claimant’s property [“no. 76”, formerly plot 3] over a private driveway which linked no. 76 to the public highway. The right which was granted under a 1999 transfer, which was in the following terms: “(c) To pass and repass at all times and for all purposes over and along so much of the private driveway edged green on the said plan as is necessary to obtain access to the Property ...” Issue 1: Did the right of way grant access to every part of No. 76 which abutted the driveway or was it limited to the point of access which existed at the date of the 1999 transfer? An associated dispute to be resolved was the extent of the boundaries of no. 76. The Defendants [who owned the driveway] had erected a wooden fence and some stones to separate their part of the driveway from the other part. The claimants [as the owners of no.76] later replaced the wooden fence with a brick wall, closed off the original entrance drive and opened up a new entrance to no. 76. The Court of Appeal observed that in certain cases, the court may conclude, on the facts of that case, that the dominant description of the boundary of the property conveyed is the red edging on the conveyance or transfer plan, so that the plan must be taken to dominate and to prevail over the position on the ground (e.g. Beale v. Harvey [2003] EWCA Civ 1883, where the plan attached to the transfer of a plot of land which included a barn conversion was prepared by an architect but between exchange and completion the developer erected a retaining wall and

post and wire fence, intended to separate the plot from an adjoining plot, in the wrong place.] However, in the Shaw case, the Court of Appeal concluded that the plan could not dominate and prevail over the position on the ground. Patten LJ, delivering the leading judgment of the Court, explained that – “The material parts of the plan were hand drawn rather than based on an Ordnance Survey sheet or other accurate survey and the plan was intended to represent the position of the drive at the time of the transfer which, as the judge found, was the only topographical feature available to the parties to distinguish between plot 3 and the land retained by the defendants. Given the scale of the plan and the way in which it was prepared, inaccuracies were bound to exist and it matters not in my view that it was not in terms stated to be for identification purposes only. The surrounding circumstances point clearly to the parties having intended that the defendants should retain the surface of the driveway and that the Leroys [i.e. the original purchasers of no. 76] should be limited to having a right of way over the driveway as marked in green.” Moreover, the wooden fence did not exist at the date of exchange [nor seemingly on the date of completion]. The Court concluded that, as a matter of construction, the defendants must be taken to have intended to transfer to Mr and Mrs Leroy (the Claimant’s predecessor in title) the totality of plot 3 up to the edge of the asphalted carriageway. On this basis, there was no trespass by the wall on to the defendants’ property. Issue 2: The extent of access permitted by the right of way The second property issue was whether Mrs Shaw had the right to access No. 76 via the new entrance on to the driveway. It was common ground that the question whether a right of way gives access to every part of the dominant tenement is one of construction of the relevant conveyance or transfer. Patten LJ, with whom the Chancellor of the High Court agreed, held -

“36. … that the primary purpose of the green edging is to identify the maximum possible extent of the driveway over which the grantee may be entitled to exercise a right of way without by itself determining whether and what part of that use is necessary. The colouring is a relevant feature… of the grant of the right of way contained in paragraph (c) of the First Schedule…” The Court further rejected the contention that the words “is necessary” limited the right of way to a particular and fixed point of access that existed at the date of the grant. Their focus was directed at what was necessary from time to time during the subsistence of the grant. Therefore, the right to way gave access to every part of the dominant tenement, including via the new entrance on to the driveway. Note: This case is a reminder that the conveyancer acting on a transfer of part needs to seek clear instructions from the client over any easements to be granted or reserved, so that the scope of the rights of way are clear from the outset and also to avoid future disputes as to boundary demarcation (in the Shaw case, the positioning of the fence).

2. Extent of Recreational Rights Granted Regency Villas Title Ltd v Diamond Resorts (Europe) Ltd [2017] EWCA Civ 238 Twenty-six timeshare units known as the Regency Villas were built on the ‘timeshare land’. Each owner had the exclusive but transferable right to occupy a particular unit or units at specified periods each year, usually one or two weeks. The first claimant was a company that owned the freehold of the timeshare land. The second to fifth Claimants acted on behalf of the timeshare owners. The timeshare land was entirely enclosed by the ‘Broome Park Estate’, which included the Broome Park Mansion House. In 1981, a Transfer transferred the timeshare land to the Claimant’s predecessor. While the transfer deed was missing, the Land Registry had noted against both seller’s and buyer’s registered titles that the Transfer was conferred on the land transferred the benefit of certain rights, including -

“…the grant of the right ‘to use the [existing sporting and recreational facilities] and the ground and basement floor of [the Mansion House], [the] gardens and any other sporting or recreational facilities … on the [defendants’] adjoining estate’”. The issue was whether the Claimants were entitled to use of the sporting and recreational facilities as they then existed free of charge.

Construction of the Grant The Court of Appeal held that – (1)

The most natural meaning of the words of the grant was that what was

intended was a grant of the right to use the garden, the existing sporting

and recreational facilities, and any sporting or recreational facilities that

were to be found at the date of the grant on the ground or basement floors of

the Mansion House. It was fairly clear also that the grant was only intended

to extend to sporting and recreational facilities, not to other facilities, such as,

for example, a restaurant. Moreover, there was no element of futurity in the

words used, so they could not be construed as including any future sporting or

recreational facilities that might later be provided by the defendants on

their land.

(2)

A new or improved facility replacing an existing facility of the same type

on the same area of ground would be covered. However, the grant was not

wide enough to cover any major extensions, substitutions or moved facilities

on any other piece of land.

(3)

The grant was to use the sporting and recreational facilities anywhere on the

servient land, not on an adjoining site.

(4)

The question of whether a minor or de minimis extension to the land used by

the existing or replacement facilities did not arise on the facts of this case. But

the Court was inclined to accept that such an incremental increase in the

land used by the golf course or, say, a small extension to the existing land used

by the swimming pool or to the run back used by the tennis courts, would

have been covered on the proper construction of the grant.

(5)

The same approach therefore had to be adopted in relation to substitutions

and moved facilities. The essence of the grant of an easement was to use

the land over which the easement is granted in a stated way. In the absence

of the most specific words, which were conspicuously absent from the 1981

transfer, a grant would not be construed as entitling the dominant owner to

use any facility that might be constructed anywhere on the servient

tenement. Here the grant was properly construed only as a grant to use the

existing facilities as they stood at the date of 1981 transfer, together with any

new, improved or replacement facilities of the same kind replacing the

existing facilities on the same areas of land, subject only to minor or de minimis

extensions, but not any substantial extensions of such facilities on additional

areas of land.

3. Right of Access onto Adjoining Land for Ancillary Purposes? In Das v Linden Mews Ltd [2002] EWCA Civ 590, the Court of Appeal upheld the general principle established by Harris v Flower (1904) 74 LJ 127 that it is impermissible to extend a right of way from the dominant tenement onto neighbouring land in order to enlarge the area of the said tenement. In Das, the appellants’ house enjoyed an express right of way over a private road. They also used a piece of garden ground adjoining their house for parking. The Court of Appeal in Das held that this was a separate use from mere access. It was a use that took place other than on the dominant tenement, and by using the ‘carriageway’ to access that parking space the owner had extended the dominant tenement. It was apparent that one key difference between this case and the Gore decision (see below) was that it would have been possible for the appellants in Das to create a garage within their existing dominant tenement. The decision in Das would have been different if the Court had found that the use of the garden ground was ancillary to the use of the dominant tenement. Gore v Naheed and Ahmed [2017] EWCA Civ 369 The dispute between the parties centred on the use of a driveway which adjoined Mr Gore’s property known as the Granary. The Granary enjoyed a right of way over the driveway by virtue of a conveyance dated 11 November 1921 under which the then owner conveyed to the purchasers the Granary and some adjoining cottages and land: 42

“TOGETHER with the right for the Purchasers their respective heirs and assigns and others the owners and occupiers of the said granary in common with other persons having similar or greater rights with or without horses or other animals carts or wagons laden or unladen to go and return along and over the private entrance road or way coloured yellow on the said plan for all purposes connected with the use and occupation of the said granary but not further or otherwise.” The area coloured yellow on the conveyance plan included the entirety of the driveway shown on the plan as the Yellow land including the area marked “Garage” (the ‘Garage Land’). In 1994 a garage with some bedrooms above had been constructed on the Garage Land. It was common ground that the easement granted by the 1921 conveyance entitled Mr Gore to drive a car or other vehicle to the front door of the Granary (as shown on the plan) and to park the car there for the purposes of loading and unloading. The defendants, who owned a neighbouring building, used the driveway for deliveries to their premises. The area occupied by the driveway was quite confined and the effect of parking or delivering when outside the rear of the defendants’ premises was that it would almost inevitably obstruct vehicular access to the Granary or the Garage Land. What was in dispute was the right of Mr Gore (or a tenant of the property) to use the driveway to obtain direct access to the Garage Land for the purposes of leaving a car parked there for an indefinite period of time. The issue therefore was whether the 1921 conveyance gave the claimant as the owner of the Granary the right to use the driveway to obtain direct access to the Garage Land for the purpose of parking. After considering relevant case law, the Court of Appeal ruled that the judge had been entitled to find that the use of the Garage Land was ancillary to the use and enjoyment of the Granary. Accordingly, parking within the Garage by a resident of the Granary should not be treated as the use of the Garage Land in its own right for a purpose independent of the use of the dominant tenement. It would have been different if the Garage Land were let to or used by a third party separately from the occupation of the Granary. The judge had also been correct to hold that this ancillary use fell within the scope of the grant in the present case. They were wide enough to include direct access to the Garage Land for parking in connection with the residential use of the Granary. 43

Section 7 Recent Cases on Restrictive Covenants

1. Does ‘a’ Mean One? In re: Samson’s Application [2017] UKUT 0127 (LC), LP/3/2016, Mr Samson was the freehold owner of 41 Newcombe Street, a 1960s end of terrace house. He obtained planning permission to extend the terrace by constructing a house adjoining the northern flank wall of No. 41. At the same time, he proposed to construct a single storey kitchen extension at the rear of No. 41 under permitted development rights. The relevant covenants (‘Restrictions 1 and 2’) bound number 41 and were in the following terms: “Not to use buildings erected or to be erected upon the land hereby conveyed surrounded by a red line on the said plan for any purpose other than as a private dwelling-house but so that the profession of a doctor dentist or solicitor may be carried on thereon.” “... not to erect upon the said plot of land any buildings (either temporary or permanent) of any kind whatsoever without previously obtaining the written consent of the Vendors to the erection of such buildings and the previous approval of the plans for the same.” The Upper Tribunal (Lands Chamber) held that •

Restriction 1 did not prevent the proposed development since that was to be

used as a private dwelling house.

•

In the context of the provisions of the conveyance, reference to a private

dwelling house in restriction 1 did not mean a single dwelling house but meant

that any building erected or to be erected on the land shall only be used as

a private dwelling house (including ancillary buildings or structures such as a

garage, shed or conservatory). 44

•

In reaching this conclusion, the Upper Tribunal considered the decision of

Martin v David Wilson Homes Limited [2004] EWCA Civ 1027, where Buxton LJ

said at 22 to 23:

‘... I do not think that the expression “a” does carry any necessary implication of a singularity. “A” is an article not a number. When, as here, one is concerned with how any particular building shall be used, a natural way of expressing that is “use as a private dwelling house.’ •

If the draftsman had wanted to say, ‘build one dwelling house and one

dwelling house only’, he would have needed to take at least the following

steps. First, unless he was going to produce a draft that was extremely

confusing, it should put that clause separately in the covenants from the user

clauses. Secondly, he would have to refer to the erection of one dwelling

house only, not the use of buildings, extant or to be built. Third, it would not

refer to the use of buildings in the plural.”

2. Were Covenants Re-imposed on Transfer Back to Original Transferor? Jones v Oven [2017] EWHC 1647 (Ch) In 2003, the claimants sold and transferred a parcel of land (the ‘Parcel’) to the defendants’ predecessors in title (CCR) for the purposes of residential development. The dispute concerned the ‘Strip’ (i.e. a strip of land, some 4 metres wide), which formed part of the Parcel. The Strip was also immediately adjacent to the claimant’s boundary line. Both the contract and the 2003 transfer provided that, if a barn on the Parcel were to be demolished at any time thereafter, the transferees would retransfer the Strip to the transferors, free of charge and within 28 days, In the transfer to CCR, the claimants also entered into restrictive covenants so as to bind part of the land which they retained (‘the retained land’) for the benefit of the Parcel by prohibiting the carrying on of activities which would be normal in an agricultural or rural setting, but which would be a nuisance to residential estate neighbours.

The defendants’ predecessors in title (CCR) used part of the Parcel to construct a residential property which they sold to the defendants in 2005. The transfer to the defendants contained a similar provision to the 2003 transfer, but requiring the defendants to transfer the Strip to the claimants in the event of the demolition of the barn. In 2009 the barn was demolished. The main issue was whether the restrictive covenants entered into in 2003 applied to the Strip once retransferred to the claimants. The High Court held that – (i)

If the words of the covenant were read literally, then the Strip could not be

part of the retained land as defined. The consequences of such a literal

reading were that, although the claimants were restrained from carrying on

upon the retained land certain activities which would otherwise be a

nuisance to residential occupiers such as the defendants, they were not so

restrained in relation to a small piece of land (ie the Strip) lying between the

retained land and the defendants’ land, for whose benefit the covenants

were entered into.

(ii)

Something had gone wrong with the drafting. It was plainly the intention

of the parties that the land which the claimants retained in the vicinity of

the defendants’ land was to be burdened by covenants in order to enhance

its value to the CCR and to make it viable to undertake the residential

development. Construing the phrase “retained land” according to its literal

meaning would subvert that intention. Therefore, in order to support that

intention, the phrase “retained land” in the restrictive covenants was to

be construed as including the Strip which was subsequently re-transferred to

the claimants pursuant to the terms of the transfer itself.

(iii)

If the said construction of the phrase was wrong, then it was necessary

to imply a term to the effect that if the Strip is transferred back to the

claimants pursuant to the terms of the transfer, the Strip was to be subject to

the same covenants as the retained land.

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Section 8 Leasehold Reform

A. Tackling unfair practices in the leasehold market’ In July 2017, the Department for Communities and Local Government issued a consultation paper, ‘Tackling unfair practices in the leasehold market’. This consultation applied to England only. Key extracts from the paper are set out below “4. Limiting the reservation and increase of ground rents on all new residential leases over 21 years 4.16 … Any change limiting ground rent would only apply to new leases, following any commencement of new legislation. … 4.17 We are minded to introduce measures limiting ground rents in new leases to start and remain at a ‘peppercorn’ (zero financial) level. … 4.18 We also want to explore the range of means by which fairer ground rents might be achieved. … 4.19 The Government recognises the challenges faced by existing leaseholders with ‘onerous’ ground rents. We are very keen to hear views on what steps could be taken to improve the situation of these leaseholders … 5. Exempting leaseholders potentially subject to ‘Ground 8’ possession orders 5.5 We would like views on amending the Housing Act 1988 (as amended by the Housing Act 1996) to remove any opportunity for a landlord to seek a Ground 8 possession order against a leaseholder with an annual ground rent of over £1,000 in

Greater London, or over £250 elsewhere in England, that has more than three months arrears of ground rent. … 5.6 Amending the Housing Act 1988 to exempt leaseholders from ‘Ground 8’ possession orders would not affect a landlord’s ability to take legal action where a leaseholder has breached the terms of their lease, with forfeiture being the ultimate sanction available to a landlord. …”

Key Questions Seeking a Response This next section sets out three of the key questions posed by the DCLG and selected parts of the author’s responses (prefaced by the initials ‘SD’). Q8: Would limiting the sale of new build leasehold houses affect the supply of new build homes? Please explain. The Author’s response (1) Before reforming the law on the grant of new leasehold houses, I submit that the government ought to consider reasons that long leases have been used in the past (other than exploitation of the leaseholders). (1.1) For instance under current law, if the seller of a new-build house wants to retain land on a freehold estate with the benefit of positive covenants…, then granting a long lease would provide a much simpler method for enforcing such covenants than transferring the freehold would. This is because of the rule … that the burden of a positive covenant does not run with freehold land. Q16: Would restrictions on ground rent levels affect the supply of new build homes? Please explain. The Author’s response (1) There is often an inverse relationship between the level of ground rent payable by a leaseholder and the open market value of his or her flat. (High rents can depress the value of a flat and vice versa, though high class residential apartments can sell with both high rents and high market values). This inverse relationship has been borne out by the ground rents scandal. 49

Conversely, if the law is changed to impose a nominal ground rent in new long leases, the question then arises as to whether an unintended knock-on effect of that change would be to materially increase the open market value of leasehold flats across England. (2) Your consultation paper mentions Nationwide Building Society’s recent change to its policies with regards to ground rent provisions in long residential leases. I submit you should also consider the Yorkshire Building Society Part 2 requirements, which predate Nationwide’s recently announced policy change. Q19: Should the Government amend the Housing Act 1988 (as amended by the Housing Act 1996) to ensure a leaseholder paying annual ground rent over £1,000 in London or over £250 in the rest of England is not classed as an assured tenant, and therefore cannot be issued with a Ground 8 mandatory possession order for ground rent arrears? If not, why not? The author’s response I would answer YES BUT modifications need to be considered to your proposal. In support of my position, I set out the following observations – (1) Your proposal to class long tenancies (i.e. leases granted for a term of more than 21 years) as non-assured tenancies is seemingly limited to tenancies that fall under paragraph 3A of Schedule 1 Housing Act 1988. Paragraph 3A excludes tenancies from being assured tenancies where the rent for the time being does not exceed £1,000 (in Greater London) or £250 (elsewhere). However, this exclusion applies only to tenancies granted on or after 1 April 1990. This means that long leases granted between 15 January 1989 and 31 March 1990 could still potentially qualify as assured tenancies, irrespective of the level of rent during the lease term, unless (as I recommend) you decide to specifically exclude them. (1.1) Therefore, I submit that your proposal should have effect for all long leases granted on or after 15 January 1989 (i.e. the date on which the Housing Act 1988 came into force). There would be no detriment to ‘existing’ landlords under such tenancies if, as from the date your proposals came into effect, they could no longer seek possession under Schedule 2 of the 1988 Act for pre-existing leases. They would thereafter be entitled to seek forfeiture in the same way other landlords currently can under non-assured tenancies for breach of covenant by the tenant.

(2) Excluding all long leases granted on or after 15 January 1989 from being assured tenancies will also remove the anomaly that a leaseholder who occupies a dwelling as his or her only or principal home (a precondition to being an assured tenant) is at risk of their lease being terminated by execution of a possession order, not forfeiture. Once executed, the assured leaseholder has no right to seek relief against the possession order and neither does any mortgagee of the leaseholder. … Furthermore, the Housing Act 1988 sets out several mandatory grounds of possession, not just Ground 8, as well as discretionary ones. Yet a lease under which a leaseholder is a buy-to-let landlord or second homeowner is not an assured tenancy. Therefore, such a lease could be brought to an end by an order for forfeiture on grounds of breach of tenant covenant, not by possession order. With such non-assured leases, there would be a right to seek relief against forfeiture. … Furthermore, the forfeiture of such a lease is not subject to the statutory mandatory or discretionary grounds of the Housing Act 1988.

B. Doubling Ground Rents Clause 5.14.9 of Part 1 of the UK Finance Mortgage Lenders’ Handbook for conveyancers reads as follows – “We have no objection to a lease which contains provision for a periodic increase of the ground rent provided that the amount of the increased ground rent is fixed or can be readily established and is reasonable. If you consider any increase in the ground rent may materially affect the value of the property, you must report this to us (see part 2).” Yorkshire Building Society’s Part 2 requirements in this regard are that – “With regard to ground rent, please note that we have the following additional requirements to those set out in part 1 of Section 5.14.9: *

the maximum ground rent at the start of the lease must not exceed £1000

a year

the ground rent must not be capable of being increased during the first 21

years of the lease, and not more frequently than every 21 years during the rest

of the lease term

when the ground rent is reviewed, any increase must not exceed the higher of

i) 100% of the ground rent payable immediately before the date of the

rent review:

ii) a figure increased in accordance with the equivalent percentage change

in the Index of Retail Prices since the date of the previous rent review.”

Nationwide Building Society’s Part 2 requirements, updated May 2017, now state, inter alia, that “unreasonable multipliers of ground rent will not be permitted, for example, doubling every 5, 10 or 15 years.” In December 2017, the Government responded to the consultation responses to its paper, ‘Tackling unfair practices in the leasehold market’. This included an announcement that 69. The Government wants to ensure that consumers only pay for services that they receive. We will introduce legislation so that, in the future, ground rents on newly established leases of houses and flats are set at a peppercorn (zero financial value). …”

C. Update on Event Fees In 2017, the Law Commission issued a report on ‘Event Fees in Retirement Properties’. In essence, it concluded that event fees should be regulated (but not abolished) with the introduction of a new code of practice. The report’s recommendation included -

a code of practice on event fees in retirement properties; and

a proposed amendment to Schedule 2 to the Consumer Rights Act 2015, so

that any breach of the code would render an event fee unfair.

The proposed code of practice would not affect (i) any existing terms of a lease which do not relate to an Event Fee or (ii) any undertaking provided by a Landlord/ Operator to the OFT. The Code then sets out the circumstances in which an Event Fee could be charged. However, the All Party Parliamentary group on Leasehold and Commonhold Reform, in April 2017, criticised the “move back to non-transparent transfer

fees for no service” as running counter to the OFT findings. Their report included recommendations, such as giving tribunals jurisdiction to determine the payability and reasonableness of fixed fees such as sublet fees and ‘sale’ fees (including any evaluation charge for assessing the suitability of a prospective purchaser).

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Section 9 Update on Environmental Protection

Background Note For the purposes of Part IIA Environmental Protection Act 1990 (inserted by s 57 Environment Act 1995), land is only considered to be contaminated land if it is in such a condition, by reason of substances in, on or under the land, that (a) significant harm is being caused or there is a significant possibility of such harm being caused; or (b) significant pollution of controlled waters is being caused or there is a significant possibility of such pollution being caused. (Controlled waters included coastal waters, inland waters and groundwaterâ&#x20AC;&#x2122;s.) Local authorities are obliged to inspect their areas for the purpose (a) of identifying contaminated land; and (b) of enabling the authority to decide whether any such land is land which is required to be designated as a special site. Where land is so identified or designated, the local authority then comes under a further duty to serve on all appropriate persons a remediation notice requiring remediation of the site; the notice will specify what needs to be done for this purpose and the periods within which each of the things so specified has to be done. A person who caused or knowingly permitted the contaminative substances to be in, on or under the land is an appropriate person. If after reasonable inquiry no such person can be found, the owner or occupier for the time being of the contaminated land is an appropriate person.

Law Society Practice Note on Contaminated Land, updated April 2016 The Practice Note provides guidance to conveyancers about the provisions of Part 2A of the EPA 1990 in the light of the Contaminated Land Statutory Guidance 2012. The updated Note includes reference to the separate regime that applies to radioactive contaminated land. 54

The Practice Note also covers the steps to be taken in a conveyancing transaction to investigate land contamination. Powys County Council v Price & Hardwick [2017] EWCA Civ 1133 From the early 1960s until 1993 the predecessors of Powys, first Builth Wells Urban District Council and, subsequently, the Borough of Brecknock (“Brecknock”) operated a landfill site on part of a farm in Wales, pursuant to a series of licences granted by the owners of the farm. The respondents were the current owners of the farm. Brecknock came into existence in 1974 following a local government reorganisation and was abolished on 31 March 1996. Powys came into existence on 1 April 1996 by merger of Brecknock with two other districts. A key issue was whether the liabilities transferred to Powys pursuant to Article 4 of the Local Government Re-organisation (Wales) (Property etc) Order 1996 (“the 1996 Order”) included liability as an “appropriate person” under Part IIA of the Environmental Protection Act 1990 (“the 1990 Act”) in respect of the actions of its predecessor, Brecknock, in relation to the landfill site. If Powys was an “appropriate person” under section 78F(2) of the 1990 Act, it would have borne responsibility for carrying out remediation works in respect of the contaminated land. [It was accepted that if Powys was not an “appropriate person”, the respondents would be appropriate persons as owners and occupiers of the contaminated land under section 78F(4).] The Court of Appeal held that •

The definition of “appropriate person” in section 78(2) i.e. “a person …

who caused or knowingly permitted the substances … by reason of which the

contaminated land in question is such land to be in, on or under that land”

could not be construed so as to include Powys as successor of Brecknock. This

flowed from the natural meaning of the words of the provision and is, in any

event, compelled by the reasoning of the House of Lords in Transco in relation

to the same provision. The emphasis in section 78F (2) and (3) is on the actual

polluter, the person who caused or knowingly permitted the pollution. Powys

clearly did not fall into this category. 55

•

[The full reference for the Transco case is R (National Gas Grid (formerly

Transco plc)) v Environment Agency [2007] 1 WLR 318.]

•

Powys was not “an appropriate person” under Part IIA by virtue of the

operation of the succession provisions in the Local Government (Wales) Act

1994 and Article 4 of the 1996 Order. Powys accepted that had Brecknock still

been in existence in 2001 when Part IIA came into force in Wales, Brecknock

would have been an appropriate person because of its previous conduct in

relation to the site. However, Part IIA does not operate retroactively so as to

deem a predecessor body to have been under a liability which only arose

under legislation which came into force after the predecessor body ceased

to exist. The case was on all fours with Transco and Brecknock could not be

deemed to have been under a liability under Part IIA which did not exist at

the dates of the successions brought about by those Acts.

•

Crucially, at the date of succession Brecknock was not under any liability,

whether accrued, contingent or potential in respect of Part IIA, which was

capable of passing to Powys by virtue of Article 4 of the 1996 Order.

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Section 10 Updated Law Society Guidance on Transfers at Undervalue

Background Note When accepting instructions from a third party claiming to ‘represent’ an elderly or other vulnerable client on a transfer of equity or transaction at undervalue, the conveyancer needs always to keep uppermost in their mind: (i)

who their client is;

(ii)

the risk of a conflict of interest; and

(iii)

when a party to, or someone who stands to benefit from or be disadvantaged

by, a proposed transaction needs to be urged to obtain independent

legal advice.

The Law Society’s Practice Note ‘Making gifts of assets’, updated March 2017 The updated Practice Note says that “You must ensure that the donor fully understands the nature, effect, benefits, risks and foreseeable consequences of making the gift to enable them to make an informed decision about the proposed transaction. … “You should spend time with the donor to enable you to: evaluate their instructions assess whether they have the mental capacity to make the gift clarify their domestic and financial circumstances, and establish that they own the assets they wish to dispose of.” Where you receive instructions to make the gift from third parties acting on the donor’s behalf, you “should confirm your instructions with the donor in person, preferably in private...”

The Practice Note expressly covers the situation where a Solicitor is instructed by a client seeking advice “about transferring property or investments”, especially where the transfer is to be by way of gift or at a significant undervalue. [It is implicit from the reference to ‘investments’ that the Practice Note would apply if the client is seeking legal advice in connection with the provision of a cash contribution to the purchase of a property, e.g. by the client’s son or daughter.]

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Section 11 VAT on Fees Charged for Electronic Searches

Brabners LLP v The Commissioners for Her Majestyâ&#x20AC;&#x2122;s Revenue & Customs [2017] UKFTT 0666 (TC). TC/2016/02469 First-tier Tribunal (Tax Chamber) This decision did not concern local searches (conducted by post) or personal searches (involving attendance at the local authorityâ&#x20AC;&#x2122;s offices). [However, it was noted that since, until early 2017, local authorities did not routinely charge VAT for searches, on the basis that it was charging simply for access to the documents whether real, or digital). This appeal concerned the proper VAT treatment of the charges made for electronic searches carried out using Searchflow. Searchflow invoiced the Appellant solicitors for the cost of the search without the addition of VAT. The Appellant treated this fee as a disbursement and invoiced its client, as a disbursement, and without the addition of VAT. The Tribunal ruled that when the Appellant obtained search results, and prepared a separate report, it was using that information as part and parcel of its overall service. When that happened, then the search fees should not have been treated as disbursements, and VAT should have been charged. The Appellants were not simply a conduit or post-box for search results. The Tribunal arrived at the same conclusion when the Appellant did not prepare a separate report on the searches. It was not in dispute that since 1 October 1991, and by way of agreement with the Law Society, HMRC has been prepared to allow solicitors to treat postal search fees as disbursements. The Law Society argued that the concessionary treatment of postal searches was correct, and that there was no apparent difference between postal searches and electronic searches. However, this argument was rejected, as 60

(i)

this appeal did not concern whether the concession in relation to postal

search fees was right or wrong; and

(ii)

in any event, any argument as to consistency would be one as to rationality,

or legitimate expectation, and, as such, would be of a character outside the

Tribunal’s jurisdiction.

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9 & 10 October 2019, The Lowry Hotel

15 & 16 October 2019, Dunston Hall

12 & 13 November 2019, Gresham Hotel

Call: 01332 226601

the SOLICITORS group

Visit: thesolicitorsgroup.com

62 @SOLICITORSgroup #TSGLAW