Property Yearbook Volume 3

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PROPERTY YEARBOOK VOLUME 3

Celebrating 14 Years of Quality Legal Exhibitions & Training

An update on developments in conveyancing throughout 2017 including: Summaries of case law, decisions of tribunals, and statutory provisions.

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Contents...

January Rights of Way and Commercial Properties................................... 6

July Conditional Contracts........................................................................... 44

1. The Overriding Principle.................................................................. 6 2. User Limited to Existing Use at Date of Grant............................... 6 3. Right to Extinguish or Vary Route................................................... 8 3.1 Megaro v Di Popolo Hotels Ltd [2007] EWCA Civ 309............... 8 3.2 Hunte v E Bottomley & Sons Ltd [2007] EWCA Civ 1168............ 10 4. Scope of Right of Entry to Carry Out Activities on Servient Land.................................................................................. 11 5. Restricted Hours............................................................................... 12

August New Money Laundering Regulations & Clients who are Not Individuals – Part 1........................................................ 50

February User Covenants in Commercial Leases......................................... 14

Issue 1: What Contractual Terms were there Regarding Provision of Information?.................................................................... 44 Issue 2. Development Agreement – Right to Rescind if Minimum Price Not Achieved............................ 46 Issue 3: Was the Discount on the Purchase Price Conditional on the Grant of Planning Permission?.......................... 47

Defining the Permitted User................................................................ 14 Keep Open Covenants...................................................................... 16 Narrow or Wide?.................................................................................. 16 Use Classes........................................................................................... 17 Absolute or Qualified Covenant?..................................................... 17 Other User Restrictions......................................................................... 19 Don’t Forget The ‘Deeds’................................................................... 19

1. Key definitions.................................................................................. 50 Definition of business relationship...................................................... 52 Meaning of beneficial owner: bodies corporate or partnership... 52 2. Risk assessment by relevant persons............................................. 53 Policies, controls and procedures..................................................... 53 3. Customer Due Diligence................................................................ 53 4. Customer due diligence measures............................................... 55

March Control of Asbestos Regulations 2012, SI 2012/632................... 22

September New Money Laundering Regulations & Clients who are Not Individuals – Part 2......................................... 58

Who the Regulations Apply to........................................................... 22 Duty to manage asbestos in non-domestic premises: art 4........... 22 Asbestos Regulations Enforcement................................................... 25 The HSE’s Asbestos Survey Guide, 2012 version............................... 26 Other Relevant Legislation................................................................. 26 Additional Matters to Consider for Property Lawyers...................... 27

October Landlord & Tenant Act 1954 – Is Motive Relevant to .............

Establishing Intention under Possession Ground (f)?................. 66

April Side Letter: Lower Rent & Termination Provision.......................... 28

Vivienne Westwood Ltd v Conduit Street Development Ltd [2017] EWHC 350 (Ch)......................................................................... 28 The Facts............................................................................................... 28 Issue (1): binding compromise of rent review at £125,000?........... 29 Issue (2): Penalty?

Penalties: Key Legal Principles........................................................... 30

Was the threshold test met? .............................................................. 30

Was There a Legitimate interest in performance?.......................... 31

Was the Termination Provision Exorbitant or unconscionable?...... 31 Conclusion............................................................................................ 31

(1) How Did the Key Assumption of the Hypothetical Lease Affect the Open Market Value of the Rent?......................... 32 (2) Was the Arbitrator’s Award Wrong?............................................ 33 (3) Was the Expert’s Certificate Valid?.............................................. 35

Enforcement of the Fire Safety Order............................................... 74 Examples of Enforcement Action...................................................... 75 Insurance & Fire Damage................................................................... 76

December Recent Case on Grant & Exercise of Option................................ 78

June Disclaimer of a Commercial Lease................................................. 38

S Franses Ltd v Cavendish Hotel (London) Ltd [2017] EWHC 1670 (QB).................................................................................. 66 The Leases............................................................................................ 67 Unconditional Subjective Intention?................................................. 68 Objective Evidence of Intention?..................................................... 69 Derogation from Grant?..................................................................... 69 Works Falling Within Right of Entry...................................................... 70 Terms of Landlord Undertaking.......................................................... 70

November The Regulatory Reform (Fire Safety) Order 2005......................... 72

May Rent Reviews: Miscellaneous Issues................................................ 32

5. Obligation to apply enhanced customer due diligence........... 58 6. Application of simplified customer due diligence....................... 61 7. Corporate bodies: obligations....................................................... 63 8. Reliance............................................................................................ 64

Case Law on Disclaimer..................................................................... 38 Case Concerning Section 315 IA 1986............................................. 39 The statutory provisions....................................................................... 40 Other Relevant Sections of the 1986 Act.......................................... 40 Submissions on Behalf of Dr Abdulla................................................. 41 The Court’s Conclusions...................................................................... 41 Effect of Disclaimer Not Being Applicable in This Case.................. 42

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TCG Pubs Ltd (in administration) v Master and Wardens or ..........

Governors of the Art or Mystery of the Girdlers of London [2017] EWHC 772 (Ch)......................................................................... 78 The High Court’s Judgment................................................................ 80 (1) Could the option be triggered or proffered in a letter?........... 80 (2) What was the effect of the 1989 legislation on the option clause?..................................................................................... 80 (3) Was the option letter sufficient to trigger the landlord’s rights under the clause?..................................................................... 81 (4) Was the application letter an effective application for licence to assign?.......................................................................... 82 (5) Was there a waiver of the buyback right?................................. 82 Key Lessons to be Learned from this Case....................................... 83

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First published January 2017 Rights of Way and Commercial Properties

1. The Overriding Principle The scope of a right of way is determined by the construction of the words of the easement granted or reserved in the context of the deed as a whole, the surrounding circumstances, and the inferred intentions of the parties to the deed: Risegold Ltd v Escala Ltd [2009] 1 EGLR 5, CA and Oliver v Symons [2012] EWCA Civ 267.

Note: Therefore, each of the following cases needs to be considered in the light of this overriding principle.

2. User Limited to Existing Use at Date of Grant Newman v Greatorex [2008] EWCA Civ 1318 The respondents owned a covered passage that formed part of their residential property. The appellant’s property enjoyed a right of way over this passage that was used to gain access to the rear of his shop.

In 2005, the appellant obtained a liquor licence and converted his property into a bar.

The right of way was originally reserved by a 1921 conveyance for the benefit of the seller’s retained land (now owned by the appellants). The right permitted the seller, successors in title and persons authorised by the current owner to pass and repass from and to her retained land “as now used by her tenant Edward Collinson…”

At the time, Mr Collinson ran a fishmonger’s shop.

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Clearly, the scope of the right was determined solely by the use of the premises by the tenant at the time of the conveyance.

The Court of Appeal refused to overturn the judge’s conclusion that, on the balance of probabilities•

The use of the passageway was limited to Mr Collinsons’ trade customers and

staff for the purpose of gaining access to the back of his shop.

•

The passageway had not been used as an entrance or an exit for his

retail customers.

•

His retail customers probably used the front entrance to his shop.

•

Therefore, the right did not extend to use by his retail customers save in the

case of emergency, such as fire.

3. Right to Extinguish or Vary Route 3.1 Megaro v Di Popolo Hotels Ltd [2007] EWCA Civ 309 A transfer of part granted to the purchaser of a building the right, ‘in the case of emergency only to cross the roof of the Retained land and to exit to ground level with the external staircase of [the adjoining building], PROVIDED ALWAYS that the said roof and external staircase still exist AND ALSO RESERVING to the owner of the retained land from time to time the right in any event to change the route of the said emergency exit.’

The servient owner claimed to be entitled to remove the staircase.

The Court of Appeal found that the servient owner did have this right for the following reasons: i)

The parties to the transfer had contemplated the “obvious possibility” that

the seller might subsequently redevelop the retained land and that if it were

redeveloped, then other emergency arrangements might have to be made.

ii)

The words “Provided always that the said roof and external staircase still exist”

were plainly intended to ensure that the right of emergency egress was

granted only for so long as the roof and the external staircase existed. When

those features no longer existed, the right came to an end.

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iii)

The servient owner was not obliged to provide a substitute right in

circumstances where the original right has ceased to exist in accordance with

the terms of the provision.

The Court further held that for such time as the right existed, there was the further qualification that the servient owner could vary that right.

3.2 Hunte v E Bottomley & Sons Ltd [2007] EWCA Civ 1168 The appellant, Bottomley, owned a large industrial complex and granted a lease for a six-year term with a permitted use as a café.

The estate had northern and southern entrances that were linked by the internal road. The café was situated just south of the middle of the complex.

The lease conferred on the tenant a right of way with or without vehicles over the internal road, subject to a proviso that the tenant observed ‘all regulations of the Landlord for the time being relating to the parking or unloading of vehicles or the direction of traffic.’

Also, the landlord had covenanted to allow the tenant to enjoy quiet enjoyment.

The landlord sold off land on the south of the complex to a developer, and then built a wall partitioning the retained northern section from the land transferred to the developer. This has the effect of preventing anyone from gaining vehicular or pedestrian access to the café.

The Court of Appeal held that a proviso allowing the landlord to make regulations for the direction of traffic merely permitted the landlord to decide whether traffic was to pass over the roadway in a clockwise or anti-clockwise direction. It did not entitle the landlord to block the roadway and to deny any right of way over it. Moreover, it did not in any way reduce the scope of the landlord’s covenant for quiet enjoyment, which had been clearly breached by the blocking of the road.

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4. Scope of Right of Entry to Carry Out Activities on Servient Land Risegold Ltd v Escala Ltd [2009] 1 EGLR 5, CA In a transfer of part of freehold industrial premises, a right of entry had been granted for the benefit of land now owned by Risegold over adjoining land then owned

by Escala.

Risegold sought a declaration that it was entitled to enter upon the yard of the adjoining land owned by Escala in exercise of a right of entry for the purpose of carrying out proposed works of redevelopment, which comprised mainly of the proposed construction of a multi-storey block on its freehold property in accordance with a planning permission.

The right was “(exercisable upon prior notice of not less than forty eight hours notice given to the owners and occupiers of the ...the Adjoining Property”) to …enter (without vehicles) upon such part of the yard at the rear of [the Adjoining Property] as is necessary for the purpose of carrying out any maintenance repair rebuilding or renewal to the Property subject to the minimum disturbance and inconvenience being caused to the owners and occupiers of the Adjoining Property, and to the making good forthwith of all damage caused to the Adjoining Property in the exercise of such right.”

The Court held that ‘rebuilding’, in the context of the grant, was to be given a broad construction. Therefore, the provision would permit entry onto the Adjoining Property “in order to preserve existing buildings on the Property, or to pull down the buildings on the Property and (a) to put up no new buildings in their place, or (b) to put up buildings similar to the demolished buildings, or (c) to put up different buildings in the place of the demolished buildings...”

Equally, the proposed works would have constituted ‘renewal’ for the purposes of the easement.

The exercise of the right was subject to important safeguards to ensure that Escala was protected from inconvenience, nuisance and damage suffered by it. These were the ban on vehicles, keeping disturbance and inconvenience to a minimum and making good any damage forthwith.

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5. Restricted Hours Trustees Ltd v Papakyriacou and another [2009] EWCA Civ 1089 The claimants and defendants owned adjoining parcels of land. The defendants enjoyed a right, exercisable also by their tenants, to use a small loading bay forming part of the claimant’s land for the benefit of their business premises.

This right was exercisable: “…only at such times and on such days as shall previously have been approved by the Vendor the Vendor to be entitled from time to time at its discretion to alter such times and days PROVIDED ALWAYS that the person exercising such right shall be entitled to use the loading bay for a minimum of [50%] of the normal working week and the normal working week shall be defined as between the hours of [9] in the forenoon and [5] in the afternoon Monday to Friday inclusive.”

Another proviso prevented exercise of the right in such a way as to cause nuisance or annoyance to the Vendor.

The Vendor was a company called ‘Balcombe’, which at the date of grant owned the land now belonging to the claimant.

The claimant as ‘servient owner’ complained that the defendants and their tenants had used the loading bay (i) outside of the prescribed hours and (ii) in a manner that obstructed access to the entrance to its own land and interfered with its own use of the bay.

As a result, the claimant imposed more restrictive time conditions for use of the bay, until the dispute had been resolved; namely between 10.00am to 12 noon and 2.30pm to 4.30pm only.

The claimant then alleged that these time restrictions had been flouted.

The tenants had used the loading bay on occasions without any temporal restrictions, not pursuant to a right granted to them by their leases, but with the encouragement or permission of the landlord.

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The Court of Appeal found that: (i)

The judge had been entitled to find that the defendants had not used the

loading bay outside the prescribed hours; and that, as regards any future use,

they would respect the temporal limitations imposed by servient owners.

(ii)

However, the defendants’ tenants had continued to use the loading bay

outside the prescribed hours, with the defendants’ permission.

(iii)

Once the respondents received the letter from the servient owner’s Solicitors

restricting the time of operation of the easement, they should have taken

steps to limit their permission to a use within the prescribed hours, but they

did not.

(iv)

However, given that the defendants had since informed their tenants that

they were limiting their permission to use the loading bay to the prescribed

hours, the judge had been entitled to refuse to grant an injunction.

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First published February 2017 User Covenants in Commercial Leases Stephen Desmond, Lecturer

Commercial leases generally contain restrictions on the use of the premises, which in turn enable landlords to retain a degree of control over the activities carried out by their tenants.

Tenant user covenants may also be used in order to protect the landlord’s reversionary interest in the demised premises. In particular, certain uses could devalue that interest, or depress the level of rent that the landlord could charge the tenant at the outset of the lease or on rent review.

On the other hand, prospective tenants, assignees or under-tenants would want to ensure that the permitted user is not so tightly defined that it would adversely affect the marketability of their leasehold interest or tie them to a particular user that later becomes unprofitable.

As a result, landlords may find that the imposition of a narrow permitted user clause makes the property less attractive to prospective tenants and this in turn could diminish the level of rent that such tenants would be willing to pay. The outcome of negotiations is usually a compromise between both parties’ interests.

Defining the Permitted User -

A user clause can be stated in positive or negative terms. Contrast clauses

4(12)(a) and 4(19) taken from a lease that formed the subject of the dispute in

Co-operative Insurance Society Limited v Argyll Stores (1997) 3 All ER 297, HL.

Argyll Stores was the tenant of a shop situated in the Hillsborough shopping centre in Sheffield under a lease demised for the term of 35 years from 4 August 1979.

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Clause 4(12)(a) contained a negative user covenant:

“Not to use or suffer to be used the demised premises other than as a retail

store for the sale of food groceries provisions and goods normally sold from

time to time by a retail grocer food supermarkets and food superstores…”

Clause 4(19) was a positive user covenant:

“To keep the demised premises open for retail trade during the usual hours

of business in the locality and the display windows properly dressed in a

suitable manner in keeping with a good class parade of shops.”

Keep Open Covenants Keep open covenants can be particularly onerous for tenants, especially where the tenant is trading at a loss from the premises. In particular, if the tenant fails to comply with such a covenant, it can face a substantial damages award. See e.g. Douglas Shelf Seven Ltd v Co-Operative Wholesale Society Group & Kwik Save Group, [2007] CSOH 53 (a Scottish case heard in the Outer House of the Court of Session), where damages of just under £600,000 were awarded for breach of a keep open covenant by an anchor tenant.

Narrow or Wide?

A user covenant can also be drafted widely or narrowly.

“Not to use the demised premises otherwise than as offices of Accountants.”

This is a narrowly drawn clause because it limits use to a particular type

of business.

“Not to use the demised premises or any part thereof or suffer the same to be

used other than as offices.” This, by contrast, is a wider provision that does not

refer to one kind of profession or trade.

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Use Classes A user covenant can also refer to one or more use classes under the Town and Country Planning (Use Classes) Order 1987 [‘the 1987 Order’]. For example, the Permitted User could be Class A2, financial and professional services.

The parties should be aware that each use class has its own specific definition.

Hence, if the Permitted User is to be class A1, this would include any or all of the following purposes provided the sale, display or service is to visiting members of the public: (a)

for the retail sale of goods other than hot food,

(b)

as a post office,

(c)

for the sale of tickets or as a travel agency, and

(d)

for the sale of sandwiches or other cold food for consumption off

the premises.

If the permitted user in a lease is Class A1 but the landlord does not want the premises to be used as funeral directors, then this type of business must be specifically excluded.

Also, the 1987 Order itself is from time subject to revision – see e.g. The Town and Country Planning (Use Classes) (Amendment) (England) Order 2015. So, the permitted user in a lease could be restricted to a particular use class as defined by the 1987 Order as at the date the lease was granted. The effect of this would be to disregard any amendments to the Order made after that date.

Absolute or Qualified Covenant?

User covenants are either absolute or qualified.

1.

An absolute covenant imposes an absolute restriction on any change of use

during the term. Therefore, with such covenant the landlord retains total

control over the use of the premises and the tenant could only use the

premises for the Permitted User and no other use.

“Not to use the Demised Premises other than for the Permitted User is an

example of such a covenant.”

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However, such clauses could make it difficult for tenants to assign its interest or to create a sub-letting, particularly during an economic downturn. However, having a wider permitted user could mitigate this effect.

2.

A qualified covenant is a provision that obliges the tenant to obtain the

landlord’s prior consent to any change in the use of the premises. The lease

will usually stipulate that this consent usually has to be given in writing. Such

clauses would typically state:

“Not without the landlord’s prior written consent to use the demised premises

or suffer the same to be used other than as retail shop.” (Clause A).

However, there is no statutory implication with such covenants that the landlord’s consent will not be unreasonably withheld or delayed. Consequently, the landlord has absolute discretion as to whether or not to grant or withhold consent: Guardian Assurance Co v Gants Hill Holdings (1983) 267 EG 678. That said, courts sometimes imply a term that a power to withhold approval should be exercised in good faith and that the approval will not be withheld arbitrarily: Lymington Marina Ltd v MacNamara [2007] EWCA Civ 151.

3.

A fully qualified covenant would include words that require “such consent not

to be unreasonably withheld or delayed”. For example, the clause A above

would read as follows:

“Not without the landlord’s prior written consent (such consent not to be

unreasonably withheld or delayed) to use the demised premises or suffer the

same to be used other than as retail shop.”

While a fully qualified user covenant wrests a degree of control away from the landlord, it also tends not to depress the level of rents in the way that absolute and qualified covenants are liable to do. It makes it easier for tenants to find prospective assignees and undertenants willing to take leasehold interests in the premises.

Also, a tenant can challenge a landlord’s refusal to give consent on grounds of unreasonableness, which it is unable to do if the lease contains an absolute or qualified covenant. see Tollbench Ltd v Plymouth City Council (1988) 56 P & CR 194.

Note also section 19(3) Landlord and Tenant Act 1927, which applies to qualified and fully qualified covenants. It states as follows:

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“In all leases … containing a covenant condition or agreement against the

alteration of the user of the demised premises, without licence or consent,

such covenant condition or agreement against the user shall, if the

alteration does not involve any structural alteration to the premises, be

deemed, notwithstanding any express provision to the contrary, to be subject

to a proviso that no fine or sum of money in the nature of a fine, whether

by way of increase of rent or otherwise, shall be payable for or in respect of

such licence or consent; but this proviso does not preclude the right of the

landlord to require payment of a reasonable sum in respect of any damage

to or diminution in the value of the premises or any neighbouring premises

belonging to him and of any legal or other expenses incurred in connection

with such licence or consent.”

Other User Restrictions Most commercial leases require the tenant to comply with planning legislation, which for instance requires planning consents to be obtained for most material changes of use.

The tenant is generally not allowed to reside or sleep at a commercial property, unless there is separate accommodation that is included within the demise.

The tenant will usually be restrained from committing nuisance, and may covenant not to discharge deleterious substances into the drains or other conducting media serving the premises.

In appropriate cases, the tenant may be obliged to avoid overloading the floors of the premises.

There may also be a covenant preventing the tenant from carrying on any noisome, dangerous or offensive trade or business at the premises.

Don’t Forget The ‘Deeds’ Conveyancers for both parties should always check the landlord’s deeds to see whether or not they contain restrictions on use that would prevent or restrict business use. The widest form of such a clause would be:

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‘Not to use or permit the Premises to be used for any trade, business or

manufacture of any kind,’

or

‘Not to use the Premises other than as private dwelling houses.”

Where the landlord is granting an underlease, there may be similar restrictions contained in a superior title or in the head lease itself that have to be observed.

The Office of Fair Trading’s Report entitled ‘Land Agreements’, March 2011, addresses the issue of whether user covenants in leases might breach competition laws. The following conclusions were drawn by the OFT (which was subsequently replaced by the Competition and Market Authority):

“4.11 … In most cases, permitted user and restricted user clauses are unlikely

to restrict competition. However, where a land-owner is also active in a

related market and seeks to limit the availability of its land to its downstream

competitors by restricting the use of its land for a particular purpose, this has

the potential to restrict competition.

“4.12 For example, a land-owner who operates a number of convenience

stores in a particular area may limit how a lessee of a particular site may use

the property, by stipulating that the lessee may not use the site as a

convenience store, or conversely by stipulating that it must be used for a

particular purpose other than as a convenience store. This has the potential to

restrict competition in the related market for convenience stores.”

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LAW2019 Learning.

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

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12 & 13 November 2019, Gresham Hotel

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First published March 2017 Control of Asbestos Regulations 2012, SI 2012/632 Stephen Desmond, Lecturer

Note: The 2012 Regulations revoked the 2006 Control of Asbestos Regulations, but the text of the two Regulations is very similar. However, one key change introduced by the 2012 Regulations is that some types of non-licensed work with asbestos now have additional requirements – notification of work, medical surveillance and record keeping.

Who the Regulations Apply to These Regulations apply to a self-employed person as they apply to an employer and an employee and as if that self-employed person were both an employer and an employee: art 3(1).

Duty to manage asbestos in non-domestic premises: art 4 Under this provision, “’the dutyholder’ means (a)

every person who has, by virtue of a contract or tenancy, an obligation of

any extent in relation to the maintenance or repair of non-domestic premises

or any means of access or egress to or from those premises; or

(b)

in relation to any part of non-domestic premises where there is no such

contract or tenancy, every person who has, to any extent, control of that part

of those non-domestic premises or any means of access or egress to or from

those premises,

and where there is more than one such dutyholder, the relative contribution to be made by each such person in complying with the requirements of this regulation will be determined by the nature and extent of the maintenance and repair obligation owed by that person: reg 4(1).

22

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23

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“Every person must cooperate with the dutyholder so far as is necessary to

enable the dutyholder to comply with the duties set out under this regulation�

: reg 4(2).

Note: The effect of reg 4(1)(a) is that the extent of a dutyholder’s obligation under the Regulations in respect of tenanted premises is determined by the scope of their liability for maintenance or repair under the tenancy agreement or lease. So, for instance, in the case of a building containing both common parts and let units, it is often the case that the landlord will be the dutyholder in respect of the common parts and the tenants will be the dutyholders in respect of the premises demised by their lease. Each landlord and tenant in such cases will also owe each an obligation to cooperate with the other, pursuant to reg 4(2).

The dutyholder is subject to several other duties under regulation 4, including obligations: (i)

To ensure that a suitable and sufficient assessment is carried out as to whether

asbestos is or is liable to be present in the premises: reg 4(3);

(ii)

To consider the condition of any asbestos which is, or has been assumed to

be, present in the premises: reg 4(4);

(iii)

Without prejudice to the generality of the duty under reg 4(4), to ensure that

account is taken of building plans or other relevant information and of the

age of the premises; and that an inspection is made of those parts of the

premises which are reasonably accessible: reg 4(5);

(iv)

To ensure the assessment is reviewed without delay if -

(a)

there is reason to suspect that the assessment is no longer valid; or

(b)

there has been a significant change in the premises to which the

assessment relates;

(v)

Where the assessment shows that asbestos is or is liable to be present in any

part of the premises to ensure that -

(a)

a determination of the risk from that asbestos is made;

(b)

a written plan identifying those parts of the premises concerned is prepared;

and

(c)

the measures which are to be taken for managing the risk are specified in the

written plan: reg 4(8); and

(vi)

Ensure that -

(a)

the plan is reviewed and revised at regular intervals, and without delay if -

24

(i)

there is reason to suspect that the plan is no longer valid, or

(ii)

there has been a significant change in the premises to which the plan relates;

(b)

the measures specified in the plan are implemented; and

(c)

the measures taken to implement the plan are recorded.

Asbestos Regulations Enforcement The Health and Safety Executive (HSE) maintains a Public Register of Convictions, which records prosecutions and enforcement notices.

Successful prosecutions by the HSE have also included cases where the following regulations were breached (i)

Reg 6(1)(a): “An employer must not carry out work which is liable to expose

employees of that employer to asbestos unless that employer has made a

suitable and sufficient assessment of the risk created by that exposure to

the health of those employees and of the steps that need to be taken to

meet the requirements of these Regulations.”

(ii)

Reg 8(1): “An employer must hold a licence … before undertaking any

licensable work with asbestos.”

(iii)

Reg 10(1)(a): All employers shall ensure that adequate information, instruction

and training is given to every employee who is or is liable to be exposed to

asbestos, or who supervises such employees, so that those employees are

aware of eleven specified risk-prevention measures.

(iv)

Reg 11(1)(a): “Every employer must prevent the exposure to asbestos of any

employee employed by that employer so far as is reasonably practicable.”

(v)

Reg 15: The duty on employers to prepare procedures to deal with accidents,

incidents and emergencies related to the unplanned release of asbestos at

the workplace; and

(vi)

Reg 16: Every employer must prevent or, where this is not reasonably

practicable, reduce to the lowest level reasonably practicable the spread

of asbestos from any place where work under the employer’s control is

carried out.

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The HSE’s Asbestos Survey Guide, 2012 version The HSE publication “Asbestos: The Survey Guide” deals with many key issues, including: (i)

The purpose of an asbestos survey;

(ii)

Key points of a survey, which include:

Ensuring that the appropriate survey is undertaken for the client’s needs;

Avoiding caveats;

Ensuring the survey is reported in a format that can be used to prepare an

asbestos register and building plan; and

Informing the client that the survey is not the end point in managing asbestos.

(iii)

Competence and quality assurance procedures, in particular assessing the

competence of the surveyor to carry out the work required. So the Guide

continues by saying that -

“HSE strongly recommends the use of accredited or certificated surveyors for

asbestos surveys.

The dutyholder should not appoint or instruct an independent surveyor to carry out a survey unless the surveyor is competent.” (iv)

Paragraphs 23 to 29 of the Guide explain how organisations and individual

surveyors can demonstrate that they are technically competent to undertake

surveys for asbestos-containing materials (ACMs).

“The competency enquiry should be carried out as a two-stage process: -

Stage 1: An assessment of the individual’s or company’s survey expertise and

also, their knowledge of health and safety ...

-

Stage 2: An assessment of the individual’s or company’s experience and

track record ...”

Other Relevant Legislation Other legislation and regulations also apply to major works carried out to a building that contains asbestos. Two examples are –

26

Section 2(1) of the Health and Safety at Work etc. Act 1974 which states: “It shall be the duty of every employer to ensure, so far as is reasonably practicable, the health, safety and welfare at work of all his employees”; and Section 3(1) of the Health and Safety at Work etc. Act 1974 which provides: “It shall be the duty of every employer to conduct his undertaking in such a way as to ensure, so far as is reasonably practicable, that persons not in his employment who may be affected thereby are not thereby exposed to risks to their health or safety.”

Additional Matters to Consider for Property Lawyers 1.

The onus will always be on a prospective purchaser or tenant to undertake

appropriate enquiries (including inspections and surveys) in order to

determine whether the building/premises in question contains or is likely to

contain asbestos.

2.

The extent of a tenant’s obligations under the 2012 Regulations will be

influenced by matters such as whether the tenant is (a) subject to a full

repairing covenant, (b) liable to repair latent defects or (c) merely obliged to

keep the demised premises in no worse condition than is evidenced by a

schedule of condition prepared on or before the grant of the lease.

3.

The HSE has also advised that – “Asbestos may be part of any commercial or

domestic building which was built or refurbished before the year 2000.”

4.

If as part of the investigation of title on behalf of a prospective purchaser

or tenant it appears that the building might contain asbestos and no asbestos

assessment has been undertaken, the lawyer should advise the client –

(i)

of the duties under the 2012 Regulations that the client might become subject

to with effect from completion of the transaction;

(ii)

(where the landlord/seller will not be providing an asbestos assessment),

to consider seeking specialist advice on the likely costs of carrying out such an

assessment, and being mindful of the possibility that the final report

could contain a number of expensive recommendations that would have to

be implemented; and

(iii)

A client who, as dutyholder, takes out public liability insurance in respect of

premises containing asbestos would not be covered in the event of an

asbestos-related claim; unless the duties to assess the risk under the 2012

Regulations have been complied, or any non-compliance has been disclosed

to the insurer and the insurer’s specific requirements are complied with.

27

First published April 2017 Side Letter: Lower Rent & Termination Provision Stephen Desmond, Lecturer

Vivienne Westwood Ltd v Conduit Street Development Ltd [2017] EWHC 350 (Ch) The Facts The Premises were demised for a term of 15 years from 18 November 2009 at an initial Yearly Rent of £110,000 p.a., subject to ‘upwards only’ rent reviews to the open market rent on 18 November 2014 and 18 November 2019. The lease made provision for the appointment of an independent valuer if the landlord and tenant could not reach agreement on the amount of the open market rent upon review.

In a ‘Side letter’ dated the same day as the date of grant of the lease, DER (the original landlord) agreed, conditionally, that notwithstanding the terms of the lease it would accept yearly rent at a lower rate from the Claimant. The reduced rent was stepped from £90,000 p.a. in year 1 up to £100,000 p.a. in year 5; it was then capped at £125,000 p.a. for the next 5 years of the term if a higher open market rent was determined upon the first rent review. The agreement to accept a lower rent was expressed to be personal to the Claimant and not by way of variation of the lease.

However, it was not expressed to be personal to the lessor. Accordingly, it was (rightly in the Court’s view) common ground that the landlord covenants in the Side Letter would bind successors in title to the lessor.

The Side Letter also included the following termination provision:

“If you breach any of the terms and conditions contained in this agreement or

any term of the Lease and/or any document supplemental to it…, we may

terminate this agreement with immediate effect and the rents will be payable

in the manner set out in the Lease as if this agreement had never existed…”

In 2013, DER sold its reversion, a long leasehold interest in the Premises, to B&AY Properties Limited.

Before the rent review could be determined, B&AY sold its leasehold reversion to Marisilver Investissement S.A. on 20 February 2015.

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Marisilver’s agent sent an email to the Claimant on 17 March 2015 in respect of the next quarter rent payment, attaching a draft invoice (which was expressed not to be “a final invoice”) and side letter. The invoice was for a quarter’s rent in the sum of £31,250 (which was equivalent to an annual rate of £125,000). The agent later clarified that the (draft) invoice was for the quarter starting on 25 March 2015. No further or ‘final’ invoice was sent and payment in full was made by the Claimant on 31 March 2015.

Subsequently, Marisilver granted a concurrent lease of the Premises to the Defendant, making the Defendant the immediate reversioner and landlord of the Claimant. The Defendant appointed the same agent as engaged by Marisilver but when the agent then demanded rent from the Claimant, he failed to make it clear that he was now acting as agent for the Defendant rather than for Marisilver.

Confusion was eventually clarified by further communications on 2 July. On that same day, the agent notified the Claimant that a surveyor had been asked to assess the market rent for the Premises for an overdue rent review.

The Claimant still did not pay the June rent to the agents. Consequently, by letter dated 17 July 2015, the Defendant’s Solicitors wrote to the Claimant asserting a breach of the terms of the lease. They said that, without prejudice to the validity of the Side Letter, notice was given on behalf of the Defendant terminating the agreement in the Side Letter with immediate effect. The Claimant then paid the rent arrears in full, and the Solicitors accepted this as part payment only, on the basis that a rent review was in course of being arranged.

On 2 December 2015, notwithstanding the prior appointment of an independent expert surveyor, the Claimant agreed on the new rent of £232,500 p.a., albeit being subject to its position that the rent review had previously been determined.

Issue (1): binding compromise of rent review at £125,000?

The High Court rejected the contention that the demand, payment and acceptance of rent for the March 2015 quarter, at a rate that was not otherwise payable under the lease or the Side Letter, was to be taken as agreement by the Claimant and the Defendant that the yearly rent under the lease had been reviewed to an annual sum of £125,000 p.a.

There had been nothing in the conduct of the agents that could be said objectively to amount to an offer to settle the outstanding rent review at £125,000 p.a. No step had been taken, formally or informally, to activate the rent review. Rent reviews are

29

not negotiated by submitting otherwise unexplained rental invoices for quarterly rent.

This invoice was not even a formal demand for rent, but a draft invoice.

The natural interpretation of the invoice was that the Defendant was offering to accept rent at a higher rate than was strictly payable pending the rent review because it was inevitable that the Claimant (and only the Claimant) would be liable to pay at that rate following the rent review.

Issue (2): Penalty?

Penalties: Key Legal Principles The Supreme Court in Cavendish Square Holding BV v Makdessi [2016] UKSC 67 had previously confirmed (inter alia) that (i)

In English law, a penalty clause can only exist where a secondary obligation is

imposed upon a breach of a primary obligation owed by one party to

the other.

(ii)

A provision that in substance imposes a secondary liability for breach of a

primary obligation is penal if it imposes on the party in default a detriment out

of all proportion to any legitimate interest of the innocent party in the

performance of the primary obligation, or (using traditional language) which

is exorbitant, extravagant or unconscionable in comparison with the value of

that legitimate interest.

Was the threshold test met?

The High Court in the Vivienne Westwood case determined that the Side Letter placed no primary obligation on the Claimant to pay rent at the higher rate reserved by the lease (other than contingently, depending on non-satisfaction of the conditions). The Side Letter obliged the lessor to accept the lower level of rent and therefore gave the Claimant the right to pay at that lower rate, so it could not at the same time have been obliged to pay rent at the higher rate. The primary obligation was therefore to pay rent at the lower rate, with a default to the higher rate in the event of (among other things) any breach of contract. To the extent that the Side Letter purported to permit the lessor to impose a greater obligation upon the happening of any breach of any obligation of the lease, that secondary obligation was capable of being a penalty. The threshold test was satisfied.

30

Was There a Legitimate interest in performance?

The Deputy High Court Judge (Timothy Fancourt QC) then held that the Defendant did not have a legitimate interest in the Claimant performing all its obligations promptly. It merely had a legitimate interest in non-performance of the Claimant’s obligations.

It was also the case that, under the Side Letter, the same substantial financial adjustment applied whether a breach was one-off, minor, serious or repeated, and without regard to the nature of the obligation broken or any actual or likely consequences for the lessor. That was one of the hallmarks of a penalty.

Was the Termination Provision Exorbitant or unconscionable?

The Court further declined to imply into the termination provision of the Side Letter the word “materially” before the word “breach”, though the Judge found it was implicit that the Side Letter excluded a trivial (or de minimis) breach of covenant from triggering the lessor’s right to terminate the Side Letter. It followed that the lessor’s right to terminate the Side Letter arose on the occurrence of any non-trivial breach by the Claimant of its obligations.

Moreover, the natural reading of the words “and the rents will be immediately payable in the manner set out in the Lease as if this agreement had never existed” in the Side Letter was that the termination of the Side Letter had retrospective effect in that it would trigger an immediate obligation to pay the shortfall relating to previous quarters.

Therefore, the Court was in no doubt that the obligation to pay rent at a higher rate as from the rent commencement date of the lease, regardless of the nature and consequences of the breach and when it occurred, was penal in nature.

That would have been the case, even if the termination provision had had only prospective effect.

Conclusion Since the termination provision in the Side Letter was in any event penal in nature, the purported termination of the benefit of the Side Letter by the Defendant’s Solicitor’s letter dated 17 July 2015 was unenforceable and the Claimant remained liable and entitled to pay rent at the capped rate of £125,000 for so long as it satisfied the conditions in the Side Letter.

31

First published May 2017 Rent Reviews: Miscellaneous Issues Stephen Desmond, Lecturer

(1) How Did the Key Assumption of the Hypothetical Lease Affect the Open Market Value of the Rent?

Level Properties Ltd v Balls Brothers Ltd [2008] 1 P&CR 1 (Ch) Level was the landlord under a lease made in 1993; the lease had been assigned to Balls Brothers in 1996 by the original tenant. The rent was to be reviewed every four years to the higher of the passing rent and market rent.

The first issue was whether the landlord could insist on the provision of a surety on assignment even if it was unreasonable to do so; and the Court held that it could.

The second issue was whether the open market rent was to be determined on the basis of a single letting; or, if it produced a higher figure, on the basis of two lettings, one of the ground floor and one of the basement, the ‘open market yearly rent’ being the aggregate of the rents payable under those two lettings?

The High Court held that the definition of open market rent, read in isolation from the remainder of the lease, appeared to assume a notional ‘letting in the open market’ of the whole demised premises “by a willing lessor to a willing lessee.”

However, the construction of the lease as a whole was consistent with the open market rent being valued on the basis that the demised premises were capable of being let as two separate units; even though the actual lease demised the whole premises under a single letting.

Crucial to the Court’s finding was that in clause 1 a distinction was made between certain words and phrases within the Lease whose definitions applied ‘where the context so requires or admits’; and ‘Words importing one gender shall include all other genders and words importing the singular shall include the plural and

32

vice-versa’; which did not depend on the context. Therefore, the open market rent had to be construed so as to be based on a notional letting or lettings in the open market by a willing lessor or lessors to a willing lessee or lessees.

The third issue was whether the parties were bound by the determination of the Second Defendant in whole or in part.

The lease provided that, in the event of the parties not agreeing on the open market rent, the reviewed rent should be determined by an independent surveyor acting as expert. However, the expert so appointed had formed an erroneous view about the first two issues and had given effect to that view in his determination.

The Court held that these provisions required the expert to have regard to closely defined contractual criteria in arriving at the determination of the ‘open market rent’. They did not confer upon him sole and exclusive power to interpret the Lease.

Consequently, the parties to the lease were not bound by the determination based on his erroneous interpretation of the review provisions; and they had not agreed to be bound by his determination even if he fell into error. However, they remained bound by the determination where it was based upon matters other than an erroneous interpretation of a provision of the Lease.

(2) Was the Arbitrator’s Award Wrong?

Campbell-Bell v Enterprise Inns plc [2009] EWHC 2733 (QB) The lease of a public house required the rent review determination to disregard any increase in rental value attributable to authorised tenant’s improvements.

The High Court – 1.

Held that the application of the disregard is a matter of valuation practice.

2.

In considering the situation where there is more than one available method of

valuation, cited Ross on Commercial Leases, where the author wrote:

“Valuers are not required to adopt any one particular method of valuation

in order to disregard improvements…The only principle which I think is

necessary to enunciate is thus the simple one, that any method of valuation

must properly reflect the intention of the parties expressed in the lease.”

33

3.

Was satisfied that the surveyor, acting as arbitrator, had carefully considered

the submissions of both parties’ surveyors and the different methodologies that

they had adopted and given reasons for his decision. Therefore, there was

nothing wrong in law with the arbitrator’s approach.

Bromley Park Garden Estates Ltd v Mallen and another [2009] EWHC 609 (Ch) Under the rent review provisions, the market rent depended in part of the measurement of part of the demised premises, called Zone A. Originally, landlord’s and tenant’s surveyors agreed the measurement of 1340 square feet. Subsequently, the tenant’s surveyor made written submissions to the arbitrator that he had revised his own measurement to 827 square feet. The landlord’s surveyor then asked the arbitrator to order the tenant’s surveyor to supply him with certain documents, but the request was denied and the arbitrator agreed with the 827 square feet measurement.

The High Court held that the arbitrator was entitled to form the view that the documents requested were of little relevance and that the landlord’s surveyor could have made counter-submissions without seeing these documents. Furthermore, bearing in mind that the landlord’s surveyor had seen his counterpart’s submissions six weeks earlier, the arbitrator was entitled to impose a four-day deadline for the provision of counter-submissions. If the landlord’s surveyor needed more time, he should have asked the arbitrator for an extension of time.

Moreover, the arbitrator’s decision not to allow an oral hearing could be justified on grounds that such a hearing would significantly increase the costs of the arbitration and such a hearing in the circumstances would have no advantage over written submissions.

Metropolitan Property Realizations Ltd v Atmore Investments Ltd [2008] EWHC 2925 (Ch) An underlease of a parade of shops with flats above them defined “(d) “the yearly rent value of the demised premises” as being the rent agreed or failing agreement the amount which the arbitrator opines represents “a fair yearly rent for the demised premises at the relevant date having regard to rent values then current for property let without a premium with vacant possession and to the provisions of this Lease (other than the rent hereby reserved)”.

34

The High Court favoured the tenant’s subsequent argument that the arbitrator was justified in assuming that a notional tenant would take a hypothetical lease on terms that enabled it to make a profit from the aggregate rental income from the shop units and residential flats. However, the matter was remitted to the arbitrator for redetermination because he had failed in his original determination to take that profit element into account in his calculations. This failure by the Arbitrator amounted to a “serious irregularity” that caused substantial injustice to the tenant.

(3) Was the Expert’s Certificate Valid?

Homepace Ltd v Sita South East Ltd [2008] EWCA Civ 1 This case is more analogous because it did not a rent review provision.

The lease apparently granted mining rights to the tenant, who was liable to pay a base rent. The base rent would cease to be payable if an independent surveyor certified that the reserves of minerals were either exhausted or had become economically irrecoverable with no reasonable prospect of them becoming economically recoverable within the next ten years. A duly appointed surveyor later issued an exhaustion certificate about the economic recoverability of the minerals, but in preparing it he had failed to take into account the 12,000 tonnes of good limestone that remained present on the land. The issue was whether the certificate was a nullity because the surveyor had not carried out his instructions, having only considered part of the minerals.

The Court of Appeal held that there were three questions that had to be answered: (i)

What did the agreement entrust to the expert?

(ii)

Whether that is what he decided? And

(iii)

Did he make a mistake which vitiated his decision?

The Court also observed that the surveyor would not have been obliged to respond to any requests for clarification of his certificate or of the reasoning behind the certificate. However, given that the surveyor had chosen to explain the basis upon which he had proceeded, it then became open to the Court to look at his explanations when considering the reasoning that led to him issuing the certificate, and whether it was prepared on the right basis.

35

On the first question, the Court held that, despite the absence of the words ‘final and binding’, the surveyor had exclusive power to determine the questions to which his certificate is directed, e.g. about the exhaustion of all Minerals, as to their not being economically recoverable, and with no prospect of being so within 10 years. If his certificate did no more and no less than determine one or more of those matters, the certificate could not be challenged.

With regards to the second question, the problem was that the lease had not defined ‘the Minerals’, which opened up the possibility of the certificate being invalidated by the surveyor proceeding on a wrong understanding of the term.

Indeed, he had misconstrued the definition of Minerals. The lease did not delegate to him the task of defining the Minerals.

Thirdly, this error meant that he had not considered the issue of economic recoverability by reference to the Minerals as correctly understood.

Consequently, his certificate neither bound the landlord nor the tenant.

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First published June 2017 Disclaimer of a Commercial Lease Stephen Desmond, Lecturer

Case Law on Disclaimer 1.

Section 178(4) Insolvency Act 1986 provides:

A disclaimer under this section - (a) operates so as to determine, as from the date of the disclaimer, the rights, interests and liabilities of the company in or in respect of the property disclaimed; but (b) does not, except so far as is necessary for the purpose of releasing the company from any liability, affect the rights or liabilities of any other person’.

Note: Section 178 confers the power to disclaim onerous property on a liquidator of a company that is being wound up. [The power of a trustee in bankruptcy to disclaim pursuant to section 315 of the 1986 Act is considered later in this note.]

2.

Shaw v Doleman [2009] EWCA Civ 279

The Court of Appeal held that disclaimer of the lease by the assignee’s liquidator did not terminate the liability of the former tenant (as assignor) under her Authorised Guarantee Agreement (AGA).

Her liability continued after disclaimer, even though the AGA itself stated that it was to remain in force for “the period during which the Assignee is bound by the tenant covenants of the Lease”.

The former tenant’s surety liability continued after disclaimer even though the landlord had not required her to enter into a new lease upon disclaimer.

3.

Where the lease is disclaimed by a liquidator due to the insolvency of the

tenant, the obligations owed by a guarantor of the tenant to the landlord survive notwithstanding the disclaimer: Hindcastle Ltd v Barbara Attenborough Associates Ltd [1996] 1 All ER 737, HL. 38

4.

If the disclaimed lease contained rent review provisions that were not

activated, the rent under any new lease entered into at the request of the landlord (e.g. by a surety of the insolvent tenant) will be the same as the passing rent under the old lease at the date of disclaimer: RVB Investments Ltd v Bibby [2013] EWHC 65 (Ch).

5.

If a lease is disclaimed, the landlord could enforce any right conferred on the

landlord by that lease to require the guarantor of the tenant in liquidation to pay rent in lieu of entering into a new lease: Scottish Widows plc and another v Tripipatkul [2003] EWHC 1874 (Ch).

6.

Where a landlord takes possession of the demised premises following

disclaimer of the lease, it is thereby prevented from subsequently calling on a guarantor of the disclaimed tenant to take a new lease (in pursuance of a guarantor’s covenant): Active Estates Ltd v Parness [2002] EWHC 893 (Ch). A further consequence of this principle is that a landlord who takes possession of premises demised by a disclaimed lease thereby deprives itself from claiming rent payments from the guarantor: Active Estates Ltd v Parness [2002] EWHC 893 (Ch).

Case Concerning Section 315 IA 1986 Abdulla v Whelan (As Trustee in Bankruptcy of Amin) [2017] EWHC 605 (Ch) Dr Abdulla was the husband of Mrs Amin (“the Bankrupt”). He claimed to be a creditor of the Bankrupt, although her trustee in bankruptcy (“the Trustee” had not yet reached a conclusion on the validity of that claim.

At the time of the bankruptcy order the Bankrupt was a joint tenant with a Mr Elhilali of business premises (“the Property”). She and Mr Elhilali (together “the Tenants”) held the Property under the terms of a contracted-out underlease dated 26 September 2003 (“the Underlease”) for a term expiring on 31 July 2018.

On 24 June 2011, the Trustee served a notice of disclaimer pursuant to section 315 Insolvency Act 1986, disclaiming “all my/our interest in Leasehold property under the terms of [the Underlease] in respect of [the Property]”.

39

The statutory provisions The power of a trustee in bankruptcy to disclaim any “onerous property” derives from section 315(1) of the said Act. The expression “onerous property” is defined in section 315(2) as: “(a)

any unprofitable contract, and

(b)

any other property comprised in the bankrupt’s estate which is unsaleable

or not readily saleable, or is such that it may give rise to a liability to pay

money or perform any other onerous act.”

Section 315(3) provides that a disclaimer: “(a)

operates so as to determine, as from the date of the disclaimer, the rights,

interests and liabilities of the bankrupt and his estate in or in respect of the

property disclaimed, and

(b)

discharges the trustee from all personal liability in respect of that property as

from the commencement of his trusteeship,

but does not, except so far as necessary for the purpose of releasing the bankrupt, the bankrupt’s estate and the trustee from any liability, affect the rights or liabilities of any other person.”

Other Relevant Sections of the 1986 Act Section 283(1) of the Act defines what is comprised in a bankrupt’s estate. However, section 283(3), so far as material, provides by way of exception that: “Subsection (1) does not apply to – (a)

property held on trust for any other person…”

The bankrupt’s estate vest in the trustee in bankruptcy immediately on his appointment taking effect: s 306(1).

40

Submissions on Behalf of Dr Abdulla Counsel for Dr Abdulla argued that, by virtue of the disclaimer, the legal estate in the Underlease had come to an end such that no rent was payable by the Bankrupt’s estate after the disclaimer. This argument was based on the approach taken by the House of Lords in Hindcastle Limited v Barbara Attenborough Associates Limited [1997] AC 70; a case which concerned the effect of the disclaimer of a lease held by an assignee on the liability of an original tenant or a surety.

Counsel relied upon what Lord Nicholls said about the purpose of the equivalent provisions in the case of disclaimer by a liquidator of a company that is being wound up [i.e. section 178 of the 1986 Act]. This is what Lord Nicholls said, as far as material: “The fundamental purpose of these provisions is not in doubt. It is to facilitate the winding up of the insolvent’s affairs. There is a further purpose in personal insolvency cases. A bankrupt’s property vests automatically in his trustee. The disclaimer provisions operate to discharge the trustee in bankruptcy from all personal liability in respect of the property: see section 315(3)(b). …

Disclaimer will, inevitably, have an adverse impact on others: those with whom the contracts were made, and those who had rights and liabilities in respect of the property. The rights and obligations of these other persons are to be affected as little as possible. They are to be affected only to the extent necessary to achieve the primary object: the release of the company from all liability. Those who are prejudiced by the loss of their rights are entitled to prove in the winding up of the company as though they were creditors.”

This was then followed by a submission that, so as to fulfil what Lord Nicholls called the primary purpose of freeing the insolvent from all liability while doing the minimum violence to accepted property law principles, the Court should hold that the Trustee was able to disclaim the Bankrupt’s legal interest in the Underlease.

The Court’s Conclusions Mr John Male QC (sitting as a Deputy High Court Judge) implicitly accepted the submission of Counsel for the Trustee that what Lord Nicholls said in Hindcastle was not relevant to the determination of this appeal.

41

He then identified the following relevant legal principles (1)

The starting point was that the Tenants held the Underlease as joint legal

owners on trust for themselves. The legal estate in the Underlease was vested

in the Bankrupt and Mr Elhilali as trustees for themselves.

(2)

The effect of section 283(3)(a) was that the legal estate in the Underlease

was excepted from the property comprised within the Bankrupt’s estate. It

therefore remained at all times in the names of the Bankrupt and Mr Elhilali.

(3)

The exception in section 283(3)(a) was applicable. Therefore, the legal estate

in the Underlease did not vest in the Trustee.

(4)

Under section 315 the Trustee can only disclaim that which is comprised

in the Bankrupt’s estate. As the legal estate in the Underlease was not vested

in the Bankrupt’s estate, it could not be disclaimed. A trustee in bankruptcy

cannot disclaim something which is not in his ownership.

(5)

Further, and in any event, any step taken in relation to trust property, such as

a disclaimer in relation to the legal estate in the Underlease, would need to

be taken by the two trustees acting together, i.e. by the Bankrupt and Mr

Elhilali. Nor, of course, can a joint tenancy at law be severed.

(6)

The above conclusions were supported by the fact that the obligation to

pay rent is a contractual, legal obligation which flows from the legal interest in

the Underlease and not from the beneficial interest. The Landlords’ relationship

is with the Tenants. Also, there is force in the point that if the Underlease

continues against Mr Elhilali, then it must also continue against the Bankrupt as

well. The Bankrupt and her co-owner are one joint legal entity.

Effect of Disclaimer Not Being Applicable in This Case Mr John Male QC acknowledged that (1)

If the disclaimer did not apply, the consequence was that the Landlords

retained their right to prove not only for the rent accruing for the remainder

of the term of the Underlease, but also for other amounts falling due under

the Underlease, such as service charge, insurance premiums and damages

42

for any breaches of repairing covenants. Accordingly, this exposed the

Bankrupt’s estate to a much greater potential liability than if disclaimer was

available. However, this “was simply a function of the way in which the

scheme of the insolvency legislation worked and of the exclusion of property

held on trust from a bankrupt’s estate.”

(2)

Moreover, if disclaimer was not available, the implications for the bankruptcy

estates of debtors who are joint lessees are serious. Again though, it seemed

that this is a consequence of the scheme of the legislation and the exclusion

from a bankrupt’s estate of property held on trust.

(3)

Accordingly, the lease in this case had not been disclaimed and Rent

continued to be payable to the Landlords.

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First published July 2017 Conditional Contracts Stephen Desmond, Lecturer

There have been many cases over the years that have arisen out of disputes concerning a contractual condition, the satisfaction of which would make the parties’ obligation to complete the contract unconditional, but if unmet would entitle one or both parties to terminate the contract. This note considers three examples of such cases.

Issue 1: What Contractual Terms were there Regarding Provision of Information?

Gregory Projects (Halifax) Ltd v Tenpin (Halifax) Ltd [2009] EWHC 2639 (Ch) Under a conditional contract, Gregory was obliged to acquire the freehold reversion or a long lease in a site, to develop the site and then to grant a lease to Tenpin.

Either party could terminate the contract if prior to 23 February 2009 (the ‘End Date’) four conditions had not been satisfied. One of these conditions (the ‘Planning Condition’) would be satisfied on “the obtaining” of a detailed planning permission that was free from “Unacceptable Conditions” (as defined in the agreement).

Clause 2 of the agreement for lease was headed “Conditionality”. However, cl 1.1.8 said that “The headings to the clauses and schedules shall not affect the interpretation.”

Under Clause 2.6, Gregory was obliged forthwith upon receipt of any relevant planning decision to forward a copy to the Tenant or the Tenant’s Solicitors “together with a copy of any Planning Agreement … The Developer and the Tenant shall within ten Working Days thereafter give written notice to the other or to the other party’s solicitors of whether or not the Planning Permission is an Acceptable Planning Permission and if either the Developer or the Tenant fails to give such notice within such time period (time being of the essence) then the Planning Permission shall be deemed to be an Acceptable Planning Permission.”

44

There was an express right under clause 4.1 for either party to rescind if by the ‘End Date’ the Unconditional Date had not properly occurred. The Unconditional Date was the date on which the four conditions were satisfied and consequently the contract became unconditional.

Planning permission was granted in October 2008, subject to 39 conditions. Gregory informed Tenpin that it had obtained a ‘clean’ permission with ‘no onerous conditions’. However, it did not enclose a copy of the written decision.

On the End Date itself (23 February 2009) Tenpin purported to serve notice of rescission.

It was then three days later (on 26 February 2009) that Gregory sent a copy of the written decision to Tenpin.

The High Court held that: (i)

Where, as here, the contract says in terms that headings “shall not affect the

interpretation”, respect for party autonomy means that the headings cannot

be allowed to alter what would otherwise have been the interpretation of the

clause in question. (However, it is to be noted that Lewison J found the

heading in cl 2 to be inconsistent with the content of the clause).

(ii)

The Planning Condition was satisfied, and the Unconditional Date fell, on

the day that the planning permission was “obtained”. This was the date on

which the planning permission was granted. Therefore, the agreement had

become unconditional before the End Date.

(iii)

The mere service of notice under cl 2.6 would not have established whether a

planning permission was compliant with the planning condition. That would

not be known until any dispute is resolved, which may have been after the

End Date;

(iv)

Read literally, the deeming provision in clause 2.6 meant that if one party

gave prompt notice that the permission was not acceptable but the other

party failed to give notice at all, the planning permission was deemed to be

acceptable. However, that would be an absurd conclusion. It was

appropriate to imply a term that the deeming provision would operate only

against the party who failed to serve notice in time.

45

(v)

There was no longstop date for providing a copy of the planning decision.

There were no grounds for implying a contractual term that a copy of the

planning decision had to be given to Tenpin (the tenant) not less than ten

days before the End Date, and that unless this was done the Planning

Condition was deemed not to have been satisfied.

(vi)

Therefore, Tenpin could not rescind the agreement.

Issue 2. Development Agreement – Right to Rescind if Minimum Price Not Achieved Gold Group Properties Ltd v BDW Trading Ltd (formerly known as Barratt Homes Ltd) [2010] EWHC 323 (TCC) In a development agreement made between the parties in August 2007, the defendant (Barratt) agreed to build a number of houses and flat, and the claimant (Gold) as freeholder agreed to sell them on long leases. The parties agreed to share the net sale proceeds. Each residential unit was to be sold at no less than the minimum price set out in the agreement.

The minimum price for each unit was set out in the Fourth Schedule but could be substituted from time to time by agreement of the parties.

Barratt did not commence the building works by the agreed date because it had formed the view that it was a condition precedent to its commencement and carrying out of these works that the properties would fetch the minimum prices set out in the agreement. The post-contract fall in property values made the minimum prices unachievable. Therefore, they were not obliged to start work and/or the agreement was frustrated.

Barratt’s proposals to revise the minimum prices were rejected by Gold. Barratt then wrote to Gold in terms that the contract was void and unenforceable.

The QBD, Technology and Construction Court held that: (i)

The minimum prices had been set for the purpose of apportioning risk and

benefit between the parties.

46

(ii)

The agreement set out in advance the anticipated minimum revenue that

would be generated from the development of the site.

(iii)

The minimum prices were not set in stone or incapable of variation.

(iv)

The seller was not guaranteed to recover a fixed or minimum sum. The seller

had a share in the revenue and would have benefited if house prices had

risen. This also brought with it the concomitant risk that house prices might fall,

so that their own share would then be less. This risk was inherent in

the agreement.

(v)

Equally, Barratt would have benefited from rising prices, but ran the risk that a

property might sell for a price below the minimum figure.

(vi)

Achieving the minimum prices was not a condition precedent to the carrying

out of the building works.

(vii)

The contract had not been frustrated by the fall in property prices because

such a drop was foreseeable to both parties. Despite the fall in prices, the

agreement was capable of performance.

(viii) On the fact of it, Barratt’s refusal to commence the building works was not

justified and amounted to a repudiation of the agreement. They wrongly

treated the contract as frustrated. However, it was unclear without further

evidence if Gold had accepted Barratt’s repudiation.

(ix)

Nevertheless, Barratt was granted conditional leave to defend the repudiation

allegation, albeit solely on the basis of their contention that Gold was itself

in repudiatory breach of contract by refusing to negotiate. However, the

Court expressed the view that this argument did not have “a strong chance

of success.”

Issue 3: Was the Discount on the Purchase Price Conditional on the Grant of Planning Permission?

Anglo-Continental Educational Group (GB) Ltd v Capital Homes (Southern) Ltd [2009] EWCA Civ 218

47

The claimant was the registered proprietor of two adjoining properties. The properties were subject to restrictive covenants that prevented the development of these properties without a third party’s consent. Those covenants were noted on the register of both titles. The defendant was interested in buying the properties in order demolish them and to build no more than 14 flats thereon.

The claimant and defendant then entered into an agreement concerning the two properties and conditional on the latter obtaining satisfactory planning permission to build 14 flats within nine months. Either party could terminate the agreement if the permission was not granted within nine months (subject to an extension if there was an appeal). The defendant buyer also had the right to waive the condition for planning permission in order to prevent the claimant from rescinding the contract.

The purchase price was “£862,000 ... less the amount (including covenantees’ fees and costs) required to obtain a deed of release/variation of the covenants ... to enable the Development to be implemented”.

The defendant’s planning applications for the erection 13 flats and 14 flats were refused. In fact, it obtained planning permission to build 9 flats. It then waived the condition requiring planning consent.

The main issue was whether the discount in the calculation of the purchase price applied in this case.

The difficulty was that the agreement was not well drafted. The Court of Appeal agreed with the judge that it was improbable that the parties to this agreement would have agreed that there should be no discount for the costs of obtaining the release of the restrictive covenants where the planning condition had been waived.

It was clear beyond doubt from the construction of the contract that the discount was not conditional on planning permission. The discount was applicable whether or not planning permission had been granted. Moreover, since the agreement expressly contemplated that the buyer may waive the planning condition at any time; the definition of Purchase Price had to work even though there was no planning permission.

The discount at the date of completion must be an amount which was reasonably required for the purpose of obtaining a release or variation of the applicable restrictive covenants such as would enable the proposed development to take place.

48

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49

First published August 2017 New Money Laundering Regulations & Clients who are Not Individuals – Part 1 Stephen Desmond, Lecturer

The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 transpose the Fourth EU Money Laundering Directive (Directive 2015/849/EU of the European Parliament and of the Council) into UK law, with effect from 26 June 2017.

The 2017 Regulations (‘MLR 2017’) have also replaced the Money Laundering Regulations 2007.

This article, which is written in two parts, highlights key aspects of the new Regulations insofar as they are likely to be relevant to commercial property lawyers acting for a UK-based client who is not an individual. This note does not consider the position of a non-UK-based client, such as a body corporate constituted under the law of a country or territory outside the United Kingdom.

The MLR 2017 are currently set out in full on http://www.legislation.gov.uk which contains public sector information licensed under the Open Government Licence v3.0.

1. Key definitions Key definitions in reg 3(1) MLR 2017 include the following “beneficial owner” – (a)

in the case of a body corporate or partnership, has the meaning given by

regulation 5;

(b) … (c) …

50

“body corporate” (a)

includes –

(i)

a body corporate incorporated under the laws of the United Kingdom or any

part of the United Kingdom, and

(ii) …; (b)

but does not include –

(i)

a corporation sole, or

(ii)

a partnership that, whether or not a legal person, is not regarded as a body

corporate under the law by which it is governed;

“officer”, except in Part 8 and Schedule 5 (a)

in relation to a body corporate, means –

(i)

a director, secretary, chief executive, member of the committee of

management, or a person purporting to act in such a capacity, or

(ii)

an individual who is a controller of the body, or a person purporting to act as

a controller;

(b)

in relation to an unincorporated association, means any officer of the

association or any member of its governing body, or a person purporting to

act in such a capacity; and

(c)

in relation to a partnership, means a partner, and any manager, secretary or

similar officer of the partnership, or a person purporting to act in such

a capacity;

[This note does not consider the provisions of Part 8 or Schedule 5 of the 2017 Regulations.]

Note: A “relevant person” includes any law firm that by way of business provides legal or notarial services to other persons, when participating in financial or real property transactions”. See reg 3(1), 8(2)(d) and 12.

Note: The definition of “regulated market” is apt to include the London Stock Exchange.

51

Definition of business relationship Reg 4(2) MLR 2017 provides that –

‘A relationship where the relevant person is asked to form a company for

its customer is to be treated as a business relationship for the purpose of these

Regulations, whether or not the formation of the company is the only

transaction carried out for that customer.’

Meaning of beneficial owner: bodies corporate or partnership Reg 5(1) MLR 2017 reads as follows – ‘In these Regulations, “beneficial owner”, in relation to a body corporate which is not a company whose securities are listed on a regulated market, means – (a)

any individual who exercises ultimate control over the management of the

body corporate;

(b)

any individual who ultimately owns or controls (in each case whether directly

or indirectly) … more than 25% of the shares or voting rights in the body

corporate; or

(c)

an individual who controls the body corporate.’

[Reg 5(2) defines for the purposes of paragraph (1)(c) when an individual controls a body corporate that is a company or a limited liability partnership or a subsidiary undertaking of the individual.]

Reg 5(3) continues – ‘In these Regulations, “beneficial owner”, in relation to a partnership (other than a limited liability partnership), means any individual who – (a)

ultimately is entitled to or controls (in each case whether directly or indirectly)

more than 25% share of the capital or profits of the partnership or more than

25% of the voting rights in the partnership;

52

(b)

…; or

(c)

otherwise exercises ultimate control over the management of the partnership.’

2. Risk assessment by relevant persons Reg 18(1) MLR 2017 requires that –

‘A relevant person must take appropriate steps to identify and assess the risks

of money laundering and terrorist financing to which its business is subject.’

Policies, controls and procedures Reg 19(1) MLR 2017 provides that: ‘A relevant person must – (a)

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 under

regulation 18(1);

(b)

regularly review and update the policies, controls and procedures established

under sub-paragraph (a);

(c)…’

Reg 21 requires a relevant person to establish specified internal controls where “appropriate with regard to the size and nature of its business”.

3. Customer Due Diligence Reg 27(1) MLR 2017 states that: ‘A relevant person must apply customer due diligence measures if the person -

53

(a)

establishes a business relationship;

(b) …; (c)

suspects money laundering or terrorist financing; or

(d)

doubts the veracity or adequacy of documents or information previously

obtained for the purposes of identification or verification.’

Reg 27(8) and (9) further provide that – ‘(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.

(9)

For the purposes of paragraph (8), in determining when it is appropriate to

take customer due diligence measures in relation to existing customers, a

relevant person must take into account, among other things –

(a)

any indication that the identity of the customer, or of the customer’s beneficial

owner, has changed;

(b)

any transactions which are not reasonably consistent with the relevant

person’s knowledge of the customer;

(c)

any change in the purpose or intended nature of the relevant person’s

relationship with the customer;

(d) …’

54

4. Customer due diligence measures Reg 28 MLR 2017 provides that – ‘(1)

This regulation applies when a relevant person is required by regulation 27 to

apply customer due diligence measures.

(2) …

(3)

Where the customer is a body corporate –

(a)

the relevant person must obtain and verify –

(i)

the name of the body corporate;

(ii)

its company number or other registration number;

(iii)

the address of its registered office, and if different, its principal place

of business;

(b)

subject to paragraph (5), the relevant person must take reasonable measures

to determine and verify –

(i)

the law to which the body corporate is subject, and its constitution (whether

set out in its articles of association or other governing documents);

(ii)

the full names of the board of directors (or if there is no board, the members

of the equivalent management body) and the senior persons responsible for

the operations of the body corporate.

(4)

Subject to paragraph (5), where the customer is beneficially owned by

another person, the relevant person must –

(a)

identify the beneficial owner;

(b)

take reasonable measures to verify the identity of the beneficial owner so that

the relevant person is satisfied that it knows who the beneficial owner is; and

(c)

if the beneficial owner is a legal person, trust, company, foundation or similar

legal arrangement take reasonable measures to understand the ownership

and control structure of that legal person, trust, company, foundation or

similar legal arrangement.

55

(5)

Paragraphs (3)(b) and (4) do not apply where the customer is a company

which is listed on a regulated market.

(6)

If the customer is a body corporate, and paragraph (7) applies, the relevant

person may treat the senior person in that body corporate responsible for

managing it as its beneficial owner.

(7)

This paragraph applies if (and only if) the relevant person has exhausted all

possible means of identifying the beneficial owner of the body corporate and

(a)

has not succeeded in doing so, or

(b)

is not satisfied that the individual identified is in fact the beneficial owner.

(8) …

(9)

Relevant persons do not satisfy their requirements under paragraph (4) by

relying solely on the information –

(a)

contained in –

(i)

the register of people with significant control kept by a company …;

(ii)

the register of people with significant control kept by a limited liability

partnership …; or

(iii)

the register of people with significant control kept by a European Public

Limited-Liability Company …;

(b)

referred to in sub-paragraph (a) and delivered to the registrar of companies

… under any enactment; or

(c) …

(10)

Where a person (“A”) purports to act on behalf of the customer, the relevant

person must –

(a)

verify that A is authorised to act on the customer’s behalf;

(b)

identify A; and

(c)

verify A’s identity on the basis of documents or information in either case

56

obtained from a reliable source which is independent of both A and

the customer.

(11)

The relevant person must conduct ongoing monitoring of a business

relationship, including -

(a)

scrutiny of transactions undertaken throughout the course of the relationship

(including, where necessary, the source of funds) to ensure that the

transactions are consistent with the relevant person’s knowledge of the

customer, the customer’s business and risk profile;

(b)

undertaking reviews of existing records and keeping the documents or

information obtained for the purpose of applying customer due diligence

measures up-to-date.

(12) to (17) …

(18)

For the purposes of this regulation –

(a)

except in paragraph (10), “verify” means verify on the basis of documents or

information in either case obtained from a reliable source which is

independent of the person whose identity is being verified;

(b)

documents issued or made available by an official body are to be regarded

as being independent of a person even if they are provided or made

available to the relevant person by or on behalf of that person.’

57

First published September 2017 New Money Laundering Regulations & Clients who are Not Individuals – Part 2 Stephen Desmond, Lecturer

The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 transpose the Fourth EU Money Laundering Directive (Directive 2015/849/EU of the European Parliament and of the Council) into UK law, with effect from 26 June 2017.

The 2017 Regulations (‘MLR 2017’) have also replaced the Money Laundering Regulations 2007.

This article, which is written in two parts, highlights key aspects of the new Regulations insofar as they are likely to be relevant to commercial property lawyers acting for a UK-based client who is not an individual. This note does not consider the position of a non-UK-based client, such as a body corporate constituted under the law of a country or territory outside the United Kingdom.

The MLR 2017 are currently set out in full on www.legislation.gov.uk, which contains public sector information licensed under the Open Government Licence v3.0.

5. Obligation to apply enhanced customer due diligence Reg 33 MLR 2017 sets out the following legal duties – ‘(1)

A relevant person must apply enhanced customer due diligence measures

and enhanced ongoing monitoring, in addition to the customer due diligence

measures required under regulation 28 and …, to manage and mitigate the

risks arising –

(a)

in any case identified as one where there is a high risk of money laundering or

terrorist financing -

(i) … (ii) …

58

(b) to (e) [not cited] (f)

in any case where –

(i)

a transaction is complex and unusually large, or there is an unusual pattern of

transactions, and

(ii)

the transaction or transactions have no apparent economic or legal

purpose, and

(g)

in any other case which by its nature can present a higher risk of money

laundering or terrorist financing.

(2) and (3) [not cited] (4)

The enhanced customer due diligence measures taken by a relevant person

for the purpose of paragraph (1)(f) must include –

(a)

as far as reasonably possible, examining the background and purpose of the

transaction, and

(b)

increasing the degree and nature of monitoring of the business relationship

in which the transaction is made to determine whether that transaction or

that relationship appear to be suspicious.

(5)

Depending on the requirements of the case, the enhanced customer due

diligence measures required under paragraph (1) may also include, among

other things –

(a)

seeking additional independent, reliable sources to verify information

provided or made available to the relevant person;

(b)

taking additional measures to understand better the background, ownership

and financial situation of the customer, and other parties to the transaction;

(c)

taking further steps to be satisfied that the transaction is consistent with the

purpose and intended nature of the business relationship;

(d)

increasing the monitoring of the business relationship, including greater

scrutiny of transactions.

59

(6)

When assessing whether there is a high risk of money laundering or terrorist

financing in a particular situation, and the extent of the measures which

should be taken to manage and mitigate that risk, relevant persons must take

account of risk factors including, among other things –

(a)

customer risk factors, including whether –

(i)

the business relationship is conducted in unusual circumstances;

(ii)

the customer is resident in a geographical area of high risk (see sub-

paragraph (c));

(iii)

the customer is a legal person or legal arrangement that is a vehicle for

holding personal assets;

(iv)

the customer is a company that has nominee shareholders or shares in

bearer form;

(v)

the customer is a business that is cash intensive;

(vi)

the corporate structure of the customer is unusual or excessively complex

given the nature of the company’s business;

(b)

product, service, transaction or delivery channel risk factors, including whether

– (i)

the product involves private banking;

(ii)

the product or transaction is one which might favour anonymity;

(iii)

the situation involves non-face-to-face business relationships or transactions,

without certain safeguards, such as electronic signatures;

(iv)

payments will be received from unknown or unassociated third parties;

(v)

new products and new business practices are involved, including new delivery

mechanisms, and the use of new or developing technologies for both new

and pre-existing products;

60

(vi)

the service involves the provision of nominee directors, nominee shareholders

or shadow directors, or the formation of companies in a third country;

(c)

geographical risk factors [which are not considered in this note]

(7)

In making the assessment referred to in paragraph (6), relevant persons must

bear in mind that the presence of one or more risk factors may not always

indicate that there is a high risk of money laundering or terrorist financing in a

particular situation.’

(8)

[not cited]’

6. Application of simplified customer due diligence Reg 37 MLR 2017 provides that – ‘(1)

A relevant person may apply simplified customer due diligence measures in

relation to a particular business relationship or transaction if it determines

that the business relationship or transaction presents a low degree of risk of

money laundering and terrorist financing, having taken into account –

(a)

the risk assessment it carried out under regulation 18(1);

(b)

…; and

(c)

the risk factors referred to in paragraph (3).

(2)

Where a relevant person applies simplified customer due diligence measures,

it must –

(a)

continue to comply with the requirements in regulation 28, but it may adjust

the extent, timing or type of the measures it undertakes under that regulation

to reflect its determination under paragraph (1); and

(b)

carry out sufficient monitoring of any business relationships or transactions

which are subject to those measures to enable it to detect any unusual or

suspicious transactions.

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(3)

When assessing whether there is a low degree of risk of money laundering and

terrorist financing in a particular situation, and the extent to which it is

appropriate to apply simplified customer due diligence measures in that

situation, the relevant person must take account of risk factors including,

among other things -

(a)

customer risk factors, including whether the customer –

(i) to (iii) …; (iv)

is a company whose securities are listed on a regulated market, and the

location of the regulated market;

(b) ... (c)

geographical risk factors [which are not considered in this note]

(4)

In making the assessment referred to in paragraph (3), relevant persons must

bear in mind that the presence of one or more risk factors may not always

indicate that there is a low risk of money laundering and terrorist financing in a

particular situation.

(5) to (7) [not cited] (8)

A relevant person must not continue to apply simplified customer due

diligence measures under paragraph (1) –

(a)

if it doubts the veracity or accuracy of any documents or information

previously obtained for the purposes of identification or verification;

(b)

if its risk assessment changes and it no longer considers that there is a low

degree of risk of money laundering and terrorist financing;

(c)

if it suspects money laundering or terrorist financing; or

(d)

if any of the conditions set out in regulation 33(1) apply.’

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7. Corporate bodies: obligations Reg 43 MLR 2017 provides as follows – ‘(1)

When a UK body corporate which is not listed on a regulated market enters

into a relevant transaction with a relevant person, or forms a business

relationship with a relevant person, the body corporate must on request from

the relevant person provide the relevant person with –

(a)

information identifying –

(i)

its name, registered number, registered office and principal place of business;

(ii)

its board of directors, or if there is no board, the members of the equivalent

management body;

(iii)

the senior persons responsible for its operations;

(iv)

the law to which it is subject;

(v)

its legal owners;

(vi)

its beneficial owners; and

(b)

its articles of association or other governing documents.

(2)

For the purposes of paragraph (1)(a)(v) and (vi), references to the legal

owners and beneficial owners of a UK body corporate include a reference

to the legal owners and beneficial owners of anybody corporate or trust

which is directly or indirectly a legal owner or beneficial owner of that

body corporate.

(3)

Paragraph (1)(a)(vi) does not apply if no person qualifies as a beneficial

owner (within the meaning of regulation 5(1)) of –

(a)

the UK body corporate; or

(b)

anybody corporate which is directly or indirectly the owner of that UK

body corporate.

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(4)

If, during the course of a business relationship, there is any change in the

identity of the individuals or information falling within paragraph (1), the UK

body corporate referred to in paragraph (1) must notify the relevant person of

the change and the date on which it occurred within fourteen days from the

date on which the body corporate becomes aware of the change.

(5)

The UK body corporate must on request provide all or part of the information

referred to in paragraph (1) to a law enforcement authority.

(6) to (8) [not cited] (9)

For the purposes of this regulation, a “relevant transaction” means a

transaction in relation to which the relevant person is required to apply

customer due diligence measures under regulation 27.’

8. Reliance Reg 39 MLR 2017 contain more robust restrictions on reliance and includes the following provisions ‘(1)

A relevant person may rely on a person who falls within paragraph (3) (“the

third party”) to apply any of the customer due diligence measures required by

regulation 28(2) to (6) and (10) but, notwithstanding the relevant person’s

reliance on the third party, the relevant person remains liable for any failure to

apply such measures.’

‘(3)

The persons within this paragraph are –

(a)

another relevant person who is subject to these Regulations under

regulation 8;

(b) to (d) …’ ‘(7)

Nothing in this regulation prevents a relevant person applying customer

due diligence measures by means of an agent or an outsourcing service

provider provided that the arrangements between the relevant person and

the agent or outsourcing service provider provide for the relevant person to

remain liable for any failure to apply such measures.’

64

Note: Paragraph (8) defines the term “outsourcing service provider”.

Reg 28 MLR 2017 was considered in Part 1 of this article. As a reminder, the customer due diligence measures set out in regulation 28(2) to (6) and (10) are required where the customer is a body corporate, the customer is beneficially owned by another person or a person (“A”) purports to act on behalf of the customer.

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First published October 2017 Landlord & Tenant Act 1954 – Is Motive Relevant to Establishing Intention under Possession Ground (f)?

Stephen Desmond, Lecturer

S Franses Ltd v Cavendish Hotel (London) Ltd [2017] EWHC 1670 (QB) A county court judge dismissed the appellant’s tenant’s claim under the Landlord and Tenant Act 1954 for a new tenancy of premises in London, on the basis that the Respondent Landlord had made out its ground of opposition under s.30(1)(f).

Section 30(1)(f) provides: “(f)

that on the termination of the current tenancy the landlord intends to

demolish or reconstruct the premises comprised in the holding or a substantial

part of those premises or to carry out substantial work or construction on the

holding or part thereof and that he could not reasonably do so without

obtaining possession of the holding.”

Section 64(1) of the 1954 Act provides that – ‘In any case where – (a)

a notice to terminate a tenancy has been given under … Part II of this Act or

a request for a new tenancy has been made under Part II thereof, and

(b)

an application to the court has been made …under section 24(1) or 29(2) of

this Act,” [i.e. seeking an order for grant of new tenancy or termination of

current tenancy] “as the case may be, and

(c)

apart from this section the effect of the notice or request would be to

terminate the tenancy before the expiration of the period of three months

8beginning with the date on which the application is finally disposed of,

the effect of the notice or request shall be to terminate the tenancy at the expiration of the said period of three months and not at any other time.’

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Section 64(2) then identifies the date on which an application is finally disposed of.

[A landlord notice to terminate a tenancy is often called a section 25 notice and a tenant request for a new tenancy is sometimes referred to as a section 26 request.]

Section 31(2), as far as material, provides: “Where the landlord opposes an application under section 24(1) of this Act, or makes an application under section 29(2) of this Act, on one or more of the grounds specified in section 30(1)(d) to (f) of this Act but establishes none of those grounds, and none of the other grounds specified in section 30(1) of this Act, to the satisfaction of the court, then if the court would have been satisfied on any of the grounds specified in section 30(1)(d) to (f) of this Act if the date of termination specified in the landlord’s notice or, as the case may be, the date specified in the tenant’s request for a new tenancy as the date from which the new tenancy is to begin, had been such later date as the court may determine, being a date not more than one year later than the date so specified – (a)

the court shall make a declaration to that effect, stating of which of the said

grounds the court would have been satisfied as aforesaid and specifying the

date determined by the court as aforesaid, but shall not make an order for

the grant of a new tenancy;

(b) …”

The Leases The tenant occupied most of the ground floor and basement areas of the building under two underleases. The rest of the building was used as a luxury hotel.

The ‘principal’ underlease contained a right of re-entry in the following terms:

“At all reasonable times during the daytime (or forthwith in case of

emergency) to permit the Landlord or its Surveyor or Agents or any person

authorised by it with or without workmen or contractors to enter the demised

premises for the purpose of examining the state of repair and condition

thereof and also for the purpose of executing any improvement it may wish to

execute or for the purpose of repairing, maintaining, cleansing, rebuilding,

altering or examining the demised premises or any adjoining or neighbouring

premises or the remainder of the said building …”

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The landlord admitted that its planned works would not be undertaken if the Tenant left voluntarily, and that if the court ruled against the Landlord on ground (f) the works would not be undertaken at all. It followed that the Landlord’s predominant purpose in devising these works was to obtain vacant possession of the premises underground (f).

Unconditional Subjective Intention?

The county court judge found, as a matter of fact, that –

“The Landlord’s current intention is in one sense conditional. It is conditional on

the termination of the current tenancy.”

The county court judge also construed the phrase “on the determination of the current tenancy” to mean “within a short time of the tenancy terminating under s.64 of the 1954 Act” (i.e. he notionally included the 3 months and 21 days the parties accept should be accounted for, and added to it a short time).

However, Jay J, the High Court judge, held that – •

Section 30(1)(f) requires that a landlord should intend to carry out the works

“on the termination of the current tenancy”. The effect of section 64 was that

the date of termination was 3 months and 21 days after the judge’s order.

•

That intention must be honest and genuine, as well as being fixed, settled

and unconditional.

•

As at the date of the hearing, it was clear that the Tenant was not going to

leave voluntarily. By that date, the Landlord had decided that it was essential

for its purposes to proceed with the planned works because there was no

other way of securing vacant possession. Its decision was conditional only in

the sense that the Tenant was adamant that it was staying put.

•

Questions of motive are irrelevant to the issue posed by ground (f).

•

Ground (f) mandates an examination of what the Landlord intends to do and

whether he intends to do it, not of why he may intend to do it. It further

requires the court to consider the nature and quality of the landlord’s intention

at the termination of the tenancy, including (by definition) the prolongation of

the contractual term by force of section 64.

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•

The courts have interpreted ground (f) to include a period of reasonable

time after the end of the tenancy, and the court’s consideration of the

landlord’s intention must cover that period. The landlord’s intention is assessed

on the evidence available at the date of the hearing, but the court must also

be satisfied that the landlord will remain steadfast to that intention once he

obtains vacant possession, including any period of reasonable time thereafter.

•

Therefore, the landlord had the requisite subjective intention.

Objective Evidence of Intention?

The county court judge was satisfied that the Landlord could reasonably expect to proceed with the planned works within a reasonable time (12 months) of obtaining vacant possession, with real prospects of overcoming such modest planning and licence problems as there were.

Jay J was satisfied that the county court judge was wrong to hold that a reasonable time for commencing the planned works was within 12 months of obtaining vacant possession. He further observed that –

“In no other case has a court been so generous to a landlord as the judge has

been in the present case” …

Jay J then noted that section 30(1)(f) and section 31(2) are not necessarily looking at the same period. The court’s power under section 31(2) is tied to the relevant notice (be it a tenant’s notice or a landlord’s notice) and enables the period specified to be extended. Section 30(1)(f) is looking at a different period, namely a reasonable time after the termination of the tenancy.

Derogation from Grant?

Jay J held that the county court judge had correctly observed that the principal underlease contained a wide right of entry and that the reservation of a right of entry is limited by the principle that a landlord must not derogate from his grant or breach the covenant of quiet enjoyment. The judge was further entitled to conclude that the planned works would “objectively constitute a derogation from grant and a breach of the covenant of quiet enjoyment”.

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Variation of Underleases?

Counsel for the tenant submitted that, for the purposes of deciding the ground (f) question of whether the Landlord could carry out the planned works “without obtaining possession of the holdings”, the judge should have considered whether the alteration covenants of the underleases could have been varied under section 35 of the 1954 Act, permitting the Tenant to create partitions dividing the premises from the space which could only be lawfully used for hotel use. If such a variation were made, the Tenant could effectively repartition the premises so as to occupy them separately from the hotel.

[Section 35 deals with determining the terms of any new tenancy granted by order of the court under Part II.] The High Court held that section 35 did not fall to be considered by the county court judge because he was being required to determine a preliminary issue, namely whether the Landlord had made out its ground of opposition underground (f).

Consideration of the terms of any new lease presupposed that the Landlord had failed in making out its objection; and arose at a subsequent stage in the process.

Works Falling Within Right of Entry The High Court held that the county court judge had failed to distinguish between those aspects of the planned works which could have been effected under the right of entry, and those which could not have been. The authorities confirm that the works have to be apportioned or divided up to the extent necessary to determine whether or not the Landlord needs possession of the holding.

Terms of Landlord Undertaking A director of the Landlord had given the court a written undertaking to commence the planned works “as soon as vacant possession … has been obtained and thereafter [to] diligently proceed to complete these specified works”.

The judge was entitled to accept an undertaking which contained no effective mechanism for monitoring compliance: effectively giving the Tenant reasonable access to the premises to check. This was because Counsel for the tenant had not expressly requested that her client should be given a right of access in order to police the undertaking.

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First published November 2017 The Regulatory Reform (Fire Safety) Order 2005 Stephen Desmond, Lecturer

The Regulatory Reform (Fire Safety) Order 2005 (‘Fire Safety Order’) imposes legal duties on the ‘responsible person’ in relation to non-domestic premises.

The “responsible person” is defined by reg 3 as meaning – (a)

in relation to a workplace, the employer, if the workplace is to any extent

under his control; or

(b)

in relation to premises not falling within (a) -

(i)

the person who has control of the premises (as occupier or otherwise) in

connection with the carrying on by him of a trade, business or other

undertaking (for profit or not); or

(ii)

the owner, where the person in control of the premises does not have control

in connection with the carrying on by that person of a trade, business or other

undertaking: art 3.

A key provision that is relevant to paragraph 3, above is reg 5(4), which provides that where a person has, by virtue of any contract or tenancy, an obligation of any extent in relation to – (a)

the maintenance or repair of any premises, including anything in or on

premises; or

(b)

the safety of any premises,

that person is to be treated as having control of the premises to the extent that his obligation so extends.

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[Note: The ‘owner’ means “the person for the time being receiving the rackrent of the premises in connection with which the word is used, whether on his own account or as agent or trustee for another person, or who would so receive the rackrent if the premises were let at a rackrent”: reg 2.]

The responsible person’s duties include: •

Making a suitable and sufficient assessment of the fire safety risks for the

purpose of identifying the general fire precautions he needs to take to comply

with this Order: reg 9;

•

Making and giving effect to such arrangements as are appropriate, having

regard to the size of his undertaking and the nature of its activities, for the

effective planning, organisation, control, monitoring and review of the

preventive and protective measures: reg 11;

•

Ensuring that risk related to the presence of dangerous substances in or on the

premises is either eliminated or reduced so far as is reasonably practicable:

reg 12;

•

Where necessary, ensuring that the premises are, to the extent that it is

appropriate, equipped with appropriate fire-fighting equipment and with fire

detectors and alarms: reg 13;

•

Where necessary, ensuring that routes to emergency exits from premises and

the exits themselves are kept clear at all times: reg 14;

•

Establish appropriate procedures, including safety drills, to be followed in the

event of serious and imminent danger: reg 15;

•

Where necessary, ensuring that the premises and any fire safety facilities,

equipment and devices provided in respect of the premises are subject to a

suitable system of maintenance and are maintained in an efficient state, in

efficient working order and in good repair: reg 19; and

•

(Where one or more other responsible persons share, or have duties in respect

of, premises) co-operating with the other responsible person or persons

concerned so far as is necessary to enable them to comply with the

requirements and prohibitions imposed on them by or under this Order: reg 22.

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As a rule, the local fire and rescue service is the enforcing authority: reg 25.

The enforcing authority may issue: •

An alterations notice requiring changes to be made to premises or to their use

for the purpose of removing a fire safety risk;

•

An enforcement notice requiring the responsible person to take steps to

remedy the failure as may be specified in the notice; and

•

A prohibition notice directing that the use to which the prohibition notice

relates is prohibited or restricted to such extent as may be specified in the

notice until the specified matters have been remedied.

The Fire Safety Order also created a number of offences for certain breaches of the Order. In a number of instances, the defendant would have a defence if he could prove that he took all reasonable precautions and exercised all due diligence to avoid the commission of such an offence: see reg 33.

Enforcement of the Fire Safety Order In the document ‘Fire and Rescue Service, Operational Statistics Bulletin for England 2007/08’ issued by the Department for Communities and Local Government, the following observations were made: “3.5

FRSs are required to prioritise audits (inspections) and enforcement action

according to the level of risk within individual types of premises…”

[Note: An FRS is the relevant Fire and Rescue Service.]

In the Department of Communities and Local Government’s “A short guide to making your premises safe from fire”, dated June 2006, the section entitled ‘Enforcing the order’ explains that fire authorities “will target their resources and inspections at those premises that present the highest risk…If you do not meet the order, the fire authority will provide practical advice or, if the risk is serious, a formal notice. Except in the most serious cases, the fire authority will work with you to achieve a satisfactory level of fire safety.” The guide also contains a brief overview of the appeals process.

74

Regarding the implementation of the ‘Fire Safety Order’, the Hereford and Worcester Fire and Rescue Service says that:

“In carrying out a risk assessment, however, the responsible person may

decide that, given the nature of the premises or the people involved, they do

not have the necessary competence to discharge their duties under the FSO.”

In that case, they could choose to appoint one or more ‘competent’ persons to assist him/her. The level of necessary competence is not prescribed in the FSO, which recognises that the extent of competency will vary according to the nature and complexity of the premises involved.”

“What happens if I share my premises with others?

“If you share a building with others, you will need to co-ordinate your risk

management plan with them.”

Examples of Enforcement Action On 14th September 2011, a Camberwell building owner received a six-month sentence suspended for 12 months after being found guilty of breaking a number of fire safety laws. He was also sentenced to 150 hours of community service and told to pay over £13,000 in costs.

The offences committed consisted of – •

Lack of a fire risk assessment

•

Lack of an emergency plan

•

No automatic fire alarm or fire detection system

•

No emergency lighting

•

The doors to all the bedrooms were not fire resisting and were not fitted

with self-closers

•

The staircase from the ground to second floor was not fire protected

•

There was no lobby protection on the first-floor landing

•

There was no lobby protection between the second and third floors

•

There was no alternative means of escape from the upper floors and the exit

discharged into the restaurant: source www.means-of-escape.com.

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In July 2011, a Nottinghamshire publican and bogus fire risk assessor were jailed for eight months when the latter (who lacked the required accreditation) illegally carried out a ‘wholly inadequate’ fire risk assessment on two properties. The property had inadequate fire doors, exit doors blocked or locked, no alarms or self-closing fire doors in bedrooms and no alternative escape routes. Fire extinguishers at the hotels had not been tested for three years.

In December 2010, Greggs the bakers were fined £50,000 and ordered to pay a further £20,326 in costs after pleading guilty to serious fire breaches at one of its stores. The contraventions included corridors that were partially blocked by plastic crates, a fire exit that was locked by four padlocks, and a locked security door at the other side of the fire exit.

Insurance & Fire Damage Dalecroft Properties Ltd v Underwriters Subscribing to Certificate Number 755/BA004/2008/OIS/00000282/2008/005 The claimant company (Dalecroft) was the freeholder of a mixed commercial and residential property in Kent. Dalecroft insured the property with the defendant underwriters, under a property owner’s policy which covered a number of risks, including fire. In May 2009 a fire caused severe damage to the property, leaving it in such a state that it needed to be demolished and rebuilt. Dalecroft made a claim under the policy: but the defendant underwriters purported to avoid the policy and tendered the return of the premium.

The Queen’s Bench Division, Commercial Court ruled: (1)

On the evidence, the underwriters had been entitled to avoid the policy of

insurance in its entirety, and to refuse all of the claims. In doing so, the insurer

was entitled to rely on three misrepresentations made at renewal, namely:

(i)

the property had been in a ‘good’ state of repair;

(ii)

the property had no area of flat roof; and

(iii)

the property had not been subject to malicious acts or vandalism.

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(2)

The underwriters had further justification to avoid the policy of insurance on

the grounds of Dalecroft’s failure to disclose that an Emergency Prohibition

Order dated 6 June 2008 had been served on the person responsible for

managing the residential parts of the property. The EPO, made under the

Housing Act 2004 s 43, prohibited the use of the residential parts of the

Property for any purposes whatsoever.

(3)

Dalecroft’s breaches of the policy conditions also discharged the underwriters

from liability under the policy. More specifically, Dalecroft -

(i)

was in breach of the Commercial Unoccupancy condition requiring the

empty commercial elements of the Property to be kept clear of all loose

combustible material; and

(ii)

was in breach of the Commercial Unoccupancy condition requiring the

empty commercial elements of the Property to be secured against illegal

entry, with all windows and doors boarded or bricked up at ground and

basement level so as to prevent unauthorised entry and all letterboxes to be

sealed to prevent insertion of material.

In the circumstances of this case, there were no grounds for confining the effect of Dalecroft’s breaches of warranty to the commercial parts only.

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First published December 2017 Recent Case on Grant & Exercise of Option Stephen Desmond, Lecturer

TCG Pubs Ltd (in administration) v Master and Wardens or Governors of the Art or Mystery of the Girdlers of London [2017] EWHC 772 (Ch) The 40 year ‘pub’ lease (‘the Hop Poles lease‘) was granted in 1987 by the Girdlers as landlord and ‘Watney’ as tenant. TCG took the lease by an assignment.

A proviso in the lease at Clause 3(12)(I) read as follows: “(I)

… PROVIDED NEVERTHELESS that Watney if they wish to assign or sublet

(other than sublettings pursuant to sub-clause (iii) hereof) the whole of the

demised premises during the said term to any other party must first grant an

option to the Girdlers Company (such option to be exercised within sixty days

of the date of receipt of notice by the Girdlers Company of application by

Watney to assign or sublet (save where pursuant as aforesaid) the whole of

the demised premises to such other party) to buy back the residue of the

said term at the then current open market value of the demised premises …

If such option is not exercised by the Girdlers Company as aforesaid Watney

may with the consent of the Girdlers Company such consent not to be

unreasonably withheld or delayed assign or sublet the whole of the

demised premises.”

Mann J referred to this this proviso as “the option clause”. [Sub-clause (iii) is not covered in this note.]

Sub-clause (I) did not itself contain the usual express prohibition on assignment without consent, but that came later in Clause 3.

After a Business Purchase Agreement (BPA) was entered into, TCG and Stonegate set about procuring an assignment of various leases, including the Hop Poles lease.

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On 7th October 2015 Solicitors on behalf of the administrators of TCG, wrote to the landlord: “We refer to the Lease dated 22nd June 1987 made between [Girdlers] and [Watney] … TCG Pubs Ltd is the current tenant of the Property.” …

In accordance with this Clause [Clause 12(I)], we have been instructed by the Administrators to offer you the ability to purchase the Property at a proposed price of £1,700,000.00. The Administrators have received an offer of £1,700,000.00 for the Property which is considered to be the open market value of the Property. …”

This letter was referred to as “the option letter”.

This letter was followed the next day by a letter from Solicitors acting on behalf of Stonegate, which the judge called “the application letter”.

The letter … goes on to say: “Our client: Stonegate Pub Company Ltd (the “Buyer”)” …

“As you may already be aware, the current Tenant under the Lease entered into administration on 29th September 2015. … …

The Administrators of the Tenant have entered into an agreement for sale of a number of assets of the Tenant, including the Property, with our client, the Buyer.

In accordance with Clause 12(I) of the Lease … the Tenant has granted an Option to the Landlord to buy the residue of the term at the current market rate… Accordingly, please take this letter as our formal application for Landlord’s consent to the assignment of the Lease to the Buyer. ….”

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The High Court’s Judgment (1) Could the option be triggered or proffered in a letter?

TCG’s case was that the requirement of the grant of an option could be fulfilled by a letter making an appropriate offer. No other degree of formality was required.

The words in the proviso were capable of meaning that what was required was a unilateral notice in accordance with the clause (short of a formal option document).

The Girdlers’ contended that what was required was the actual grant of an option a separate document, containing an option which the Girdlers could then exercise.

The words in the clause were carefully chosen and required a formal “grant” of something which was appropriately described as the subject of a grant - “grant an option”. “Grant” has an accepted and formal meaning, and it means a discrete and formal act by which the property right is conferred. What the parties intended was the grant of a formal option, which had the benefit of irrevocability and assignability.

Mann J concluded that the Girdlers are right on this point. The wording used was far more consistent with the grant of an option than with the process of giving notice. The very words “grant an option” had a more obvious reference to a formal transaction. Therefore, the prior offer of the premises has to be done by the grant of an option. By contrast, an application to assign had to be done by notice.

(2) What was the effect of the 1989 legislation on the option clause?

At the date of execution of the lease [i.e. in 1987] the tenant could have fulfilled the prerequisites for offering an assignment by the unilateral act of presenting the landlord with an executed option document. This would have complied with section 40 Law of Property Act 1925.

However, s 40 LPA 1925 was then repealed and replaced by section 2 Law of Property (Miscellaneous) Provisions Act 1989. Moreover, the Court rejected the contention that the parties would not, or would no longer, consider a formal grant was necessary in the changed circumstances [brought about by the 1989 Act] where it could not be done without the landlord’s co-operation.

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Mann J noted that

‘Because the terms of section 2 of the 1989 Act require both parties to sign a

contract for the disposition of an interest in land (including an option), the

grant of an option under the option clause can no longer be achieved by the

unilateral act that the original drafting requires or assumes.

“2(3) The document incorporating the terms or, where contracts are exchanged,

one of the documents incorporating them (but not necessarily the same one)

must be signed by or on behalf of each party to the contract.”’

It was common ground in this case that that would apply to any option document within the scope of the option clause (assuming a strict grant was required, which the judge found to have been the case).

Mann J continued that ‘47.

I do not think that the 1989 Act suddenly exonerates the tenant from having

to proffer a formal option; nor do I think that the landlord comes under

some sort of duty to co-operate. … the answer seems to me to be that the

tenant proffers the same option as before, with an invitation to the landlord to

execute it. If the landlord does so, the option has been granted, and its

mechanism is worked through. That gives the landlord the benefit of the

option that the clause anticipates. If the landlord declines to execute it then

the tenant has done all it can and that, for these purposes, would be taken to

have fulfilled its obligations under the clause. The tenant can then move on to

seek permission to assign and the landlord could not resist that on the ground

that an option has not been granted. This does not impose an obligation on

the landlord... The landlord has a choice - it can take the benefit of the option

if it wishes to have it, or reject it by not executing. If it rejects it the option has

not been strictly “granted”, but the landlord has had its opportunity to have

one, which would be enough. …’

(3) Was the option letter sufficient to trigger the landlord’s rights under the clause?

The Court held that the option letter did not proffer a formal option, so it could not comply with the pre-requisites to the tenant’s applying for licence to assign.

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(4) Was the application letter an effective application for licence to assign?

Though not necessary to his judgment, Mann J then considered this issue, which affected “when the clock started running for the landlord’s response to any request for permission to assign for the purposes of the “reasonable time” allowed to a landlord to respond under section 1(3) of the Landlord and Tenant Act 1988.

The Court was of the opinion that the letter on its face did not purport to be anything other than a letter written on behalf of the proposed assignee. Accordingly as and when received that letter did not amount to a letter which purported to be written on behalf of the tenant, or written with the tenant’s authority.

However, the Buyer did have authority to make an application for consent to assign, which was “clearly implicit” in the Business Purchase Agreement (“BPA”).

Moreover, the landlord sought confirmation that the application for consent was made on behalf of the tenant by letter of 13th November and that was confirmed

by Stonegate’s solicitors by email of 17th November and the administrators’ solicitors’ email of 18th November. Accordingly, so far as relevant, the application for consent to assign should be treated as having been made by the tenant from 18th November.

(5) Was there a waiver of the buyback right?

The Court then concluded there had been no waiver of the buyback right and in doing so noted that that the option letter contained a misrepresentation in that it stated, in effect, that the offer of £1,700,000 for the Property was “an offer in the normal sense and that the Administrators considered it to be the open market value.” The underlying suggestion was that there was some sort of arm’s length negotiation for and marketing of the property. None of that was accurate though.

The £1.7m referred to was an apportioned part of a global consideration to be paid for a large number of properties, that apportionment having been carried out by Stonegate as purchaser for its own purposes and being one which did not in any way coincided with market value.

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Key Lessons to be Learned from this Case (i)

The onus is on the parties’ lawyers to ensure that any formalities agreed

or required for the valid exercise of an option are expressly set out in the

option agreement.

(ii)

The grant of an option can no longer be achieved by the unilateral act by

one party (e.g. the grantee).

(iii)

An application for consent to assign a lease must be made by the person

authorised by the lease to make it.

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