Landlord & Tenant Review: Digest Vol 19 (5)

Commercial Update

Relief Against Forfeiture

Freifeld v West Kensington Court Ltd [2015] EWCA Civ 806

Where the head lessees of business premises concealed important breaches from the lessor and acted in continuous disregard of their obligations, it would not be fair to grant relief and restore the parties to their previous contractual relationship without some security that the future would be different. However in the instant case the head lessees had applied after judgment for relief had been refused the first time for relief on condition that they be given six months within which to complete the sale and assignment of the commercial lease, failing which it would be surrendered. The appellants proposed an undertaking to court not to apply to extend that time period, or make any further application in respect of that condition which would undermine it. The judge below, HHJ Gerald, refused relief on that basis. The Court of Appeal held that he had misdirected himself by holding that the value of the head lease was nil because he had just denied relief from forfeiture. The lease was worth between £1m-2m and the judge had accordingly not had sufficient regard to the proportionality of an order refusing relief.

Sham Tenancy; Insolvency

Re PAG Management Services Ltd (also known as Secretary of State for Business, Innovation & Skills v PAG Management Services Ltd) [2015] EWHC 2404 (Ch)

In this insolvency matter, the High Court considered whether certain leases of business premises were shams. PAG Management Services Limited (“PAG”) was a company incorporated in 2011 to manage and co-ordinate a business rates mitigation scheme to exploit an exemption from the liability to pay such business rates for the benefit of associated companies and also for third party clients. PAG had devised a scheme whereby it would incorporate special purpose vehicles (SPV) to which it would grant leases for a nominal sum, the right to which the landlord under the lease would disclaim. The SPV would then be placed into member’s voluntary liquidation at the time of grant, but no liquidator would be appointed, so that the lease would expire with exffluxion of time. This arrangement had the effect of exempting the SPV from liability to pay business rates under the Non Domestic Rating (Unoccupied Property) (England) Regulations 2008) SI 2008/386) reg 4(k). The landlord would then refurbish and/or market the property without paying any “empty rates” in the meantime, and PAG would receive a fee based on a percentage of the business rates saved as a result of the lease being in place.

When considering the issue of whether the leases were shams, Norris J accepted that there is a difference between an “artifice” and a “sham” in that artificial transactions are not necessarily sham transactions because they may be honest. He referred to the following passage of Sir Bingham MR’s judgment in Belvedere Court Management Ltd v Frogmore Developments Ltd [1997] QB 858 at 876D:

“I would … accept the judge’s view that the … leases were an artificial device intended to circumvent a result the [Landlord and Tenant Act 1987] would otherwise have brought about… I am not for my part satisfied that in the field of real property the principles in [Ramsay] and [Furniss] entitle the court simply to ignore or override apparently effective transactions which on their face confer an interest in land on the transferee. Many transactions between group companies may be artificial. That does not entitle the court in ordinary circumstances to treat such transactions as null.”

Norris J went on to find that, whilst the arrangement was artificial and uncommercial and there was an element of pretence about some of the provisions within the leases, the evidence in the present did not justify a finding that the users of PAG’s scheme were dishonest or that the leases were a sham.

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Residential Update

Right to Manage

Sinclair Gardens Investments (Kensington) Ltd v Maltings (Stanstead Abbotts) Management Co Ltd [2015] UKUT 278 (LC)

A single RTM Company may not acquire the right to manage more than one self-contained building – Triplerose Limited v 90 Broomfield Road RTM Company Limited [2015] EWCA Civ 282 followed. The FTT decision (which pre-dated the decision of the Court of Appeal in Triplerose) was therefore reversed.

Right to Manage, Service

Miltonland Ltd v Platinum House (Harrow) RTM Co. Ltd [2015] UKUT 0236 (LC)

A notice claimed the right to manage “Platinum House, Lyon Road, Harrow and appurtenant property (within the area edged in red on freehold plan NGL88768)”. The area edged red included a yard in relation to which the right to manage did not apply. The freeholder claimed that notice was void as it included the yard. Held that the words in brackets did not indicate that the yard was included.

Collective Enfranchisement, Eights Offered in Lieu

Snowball Assets Ltd v Huntsmore House (Freehold) Ltd [2015] UKUT 338 (LC)

In this collective enfranchisement claim the nominee purchaser, in addition to the block of flats, claimed the right to purchase the freehold interest in the adjacent gardens, driveway, parking spaces and leisure complex. The freeholder claimed to be entitled to offer permanent rights over, in lieu of the freehold of, appurtenant land under s. 1 (4) of the Leasehold Reform Housing and Urban Development Act 1993. The qualifying tenants’ leases stated that the garden and leisure complex were facilities which were provided “from time to time”. The freeholder claimed that the right to use the garden and leisure complex were therefore precarious. The freeholder claimed to be entitled to reserve out of the right to use that property a right to develop premises by demolishing the leisure complex and constructing new residential units in its place.

The Upper Tribunal held that there was nothing in the lease to indicate that there was the right to provide or withdraw a facility. Once a facility had been allocated for the use of lessees, there was no right to withdraw its provision. Even if there was such a right, it would be vested in the management company, in which all lessees were shareholders. Accordingly the FTT had been correct to find that the terms of acquisition should include the freehold of the additional premises because the rights offered by the freeholder did not satisfy the equivalence test in s.1(4).

Administration Charge, Costs recoverable in contemplation of service of a s. 146 notice

Willens v Influential Consultants Ltd [2015] UKUT 362 (LC)

The tenant’s lease contained a clause “To pay all expenses including solicitor’s costs and disbursements and surveyors’ fees incurred by the Landlord incidental to the preparation and service of a notice under section 146 of the Law of Property Act 1925 or incurred in or in contemplation of proceedings under sections 146 or 147 of that Act notwithstanding in any such case forfeiture is avoided otherwise than by relief granted by the Court…”

The Upper Tribunal held that on the facts of the case and on evidence which had not been seen by the FTT that costs incurred by the landlord had been in contemplation of proceedings.

Service Charges, s. 18 LTA 1985

Gateway (Leeds) Management Ltd v (1) Bahareh Naghash (2) Iman Shamsizadeh [2015] UKUT 333 (LC)

The FTT held that charges payable by the tenants of flats in a mixed use development in respect of the provision by the landlord of a gym and CCTV were (i) service charges for the purpose of s. 18 LTA 1985 and (ii) were unreasonable in amount for the purposes of s. 19 LTA 1985. The appellant was appellant was party to the flat leases as the management company, and was obligated to provide services in return for the payment of a service charge. One of the services provided was a gym. The appellant leased the gym from the landlord and sought to recover the cost of the same through the service charge. The appellant argued that the rent payable by the management company was properly characterised as rent and could not therefore be a service charge as defined by s. 18 LTA 1985. To be a service charge within the meaning of the section, the amount payable by the tenant must satisfy two conditions: it must be a payment for services, repairs, maintenance etc, and it must be capable of varying, in whole or in part, according to the costs incurred by the landlord; for this purpose the expression “landlord” includes a management company. The Upper Tribunal held that the fact that part of the expenditure incurred in providing that service is in respect of the cost of providing the premises does not convert the lessee’s obligation to contribute to the cost of providing the service into an obligation to pay a rent.

Service Charges, Consequence of failure to comply with lease machinery

Skelton v DBS Homes (Kings Hill) Ltd [2015] UKUT 379 (LC)

In respect of several service charge years the landlord had neglected to comply with the requirements of the flat leases that it should serve an estimate of the service charge for the year in question. The tenants argued that the invoices sent for the payment of service charges were therefore invalid; that nothing was at present payable in respect of any of the demands for service charge so far submitted for the relevant years; that it was too late now to submit valid demands (backed by a copy of an estimate) in respect of any of these years, because such a belated demand would not be within the terms of the lease; and quite apart from the foregoing any such belated demand would be too late having regard to the terms of section 20B(1) of LTA 1985. Held that the service charge demands for the various years became valid demands upon the date on which the tenants belatedly received a copy of the missing estimate and were payable as at that date.

Service Charges, Major Works

Edozie v Barnet Homes [2015] UKUT 348 (LC)

In about 2008 Barnet decided that major works should be carried out in relation to three blocks. Barnet applied to London Development Agency (“LDA”) for a grant in respect of such works and was duly awarded such grant. The total costs of the works was £9,465,214 of which £7,013,000 was funded by the LDA grant, and of the remaining amount, £1,403,145 was funded by London Borough of Barnet and £1,049,068 was funded by leaseholders. The issue before the Upper Tribunal was how (if at all) the fact that Barnet obtained the grant in respect of the works impacts upon the recoverability of service charge from the appellant and whether Barnet was entitled to follow the course it did in seeking to reflect the grant by diminishing, in a way which it considered to be reasonable, the amount which would otherwise have been payable by way of service charge by the appellant and the other owners of the leasehold flats.

The Upper Tribunal held that the cost of the major works was incurred by Barnet despite the receipt by Barnet of the grant. The position in general is that the receipt by a local authority lessor of a grant in respect of works to a building is not regarded as affecting what the owner of a leasehold flat can properly be charged through the service charge Craighead v Homes for Islington Limited [2010] UKUT 47 (LC), Haringey Borough Council v Ball [2004] (unreported) followed.

Assured Tenancies, Assessment of Rent

Irwell Valley Housing Association v O’Grady [2015] UKUT 310 (LC)

In assessing the rent on an application made under s. 13 HA 1988 the FTT had identified a comparable property which it had used as the basis of its decision without allowing the parties the opportunity to comment on the weight which should be given to that comparable. The Upper Tribunal set the decision aside and remitted the matter (Arrowdell Limited v Coniston (North) Hove Limited LRA/72/2005 applied):

“The parties must be given the opportunity to comment on the evidence used by the FTT in arriving at its conclusion. In practice, therefore, the burden of supplementing inadequate evidence adduced by the parties with further material which may be readily available to the FTT should be undertaken before the hearing is concluded.”

Costs on the Small Claims Track

Chaplair Ltd v Kumari [2015] EWCA Civ 798 (CA)

A landlord brought a claim in the county court to recover arrears of rent and service charge payable under a lease. As part of the claim, the landlord also sought to recover the costs of the county court proceedings and costs of related proceedings in the LVT. The lease contained tenant covenants to pay the landlord’s costs of various expenses including legal proceedings. At first instance, the judge held that since the proceedings had been allocated to the small claims track, the court could not award more than the sum fixed by CPR 27.14.

The Court of Appeal disagreed and held that the County Court has power to make an award for costs in favour of a landlord (with the amount to be assessed) under the terms of the lease where the case is allocated to the Small Claims track. Further, a County Court judge has the power to order a tenant to pay any costs to the landlord under the terms of the lease where the costs arose in related LVT proceedings. The Court of Appeal considered the following principles emerge from relevant case law and dicta: (i) an order for the payment of costs by one party to another is always discretionary (section 51, Senior Courts Act 1981) and, (ii) where there is a contractual right to the costs, the discretion should ordinarily be exercised so as to reflect that right.

Homelessness, Secure Tenancies

Wandsworth LBC v Tompkins [2015] EWCA Civ 846 (CA)

In this claim for possession, the local authority contended that the tenancy had been granted in pursuance of its homelessness function and that it was not and could not be secure because the tenant had not been notified pursuant to Sch.1, para.4. Paragraph 4 of Schedule 1 to the Housing Act 1988 provides as follows:

“A tenancy granted in pursuance of any function under Part VII of the Housing Act 1996 (homelessness) … is not a secure tenancy unless the local housing authority concerned have notified the tenant that the tenancy is to be regarded as a secure tenancy.”

The tenant contended the tenancy took effect as an introductory tenancy because the ‘Certificate of Acceptor’ contained in the tenancy and framed in the following terms provided the notification required under Sch.1, para.4:

“I/We accept that I am/we are jointly responsible for complying with all of the Tenancy Conditions, including the payment of rent. I/We understand that the tenancy will become a secure tenancy at the end of the trial period unless:

1. The tenancy has ceased to be an introductory tenancy before that date.
2. Court proceedings for possession have been issued by the Council; or
3. The tenancy has been terminated (e.g. by a Court Order for Possession).”

At first instance, the judge held the tenancy was granted pursuant to the local authority’s homelessness functions and that the certificate did not amount to a notice under Sch.1, para.4 because it did not notify the tenant that the tenancy was “to be regarded” as a secure tenancy. He considered para.4 required a landlord to specify that the tenancy was secure at the date of grant, and not that it would or might become one in the future.

The Court of Appeal agreed and ultimately held that the judge had been right to declare the tenancy was a non-secure tenancy. Further, it held that the certificate could not function as a notification under Sch.1, para.4 because, read as a whole and in the context in which it was signed, it was not any form of notification. Its purpose was to provide a statement by the tenants that they understood the statutory provisions governing the grant of an introductory tenancy, and nothing more.

Annexation, Assured Tenancies, Chattels

Spielplatz Ltd v Pearson[2015] EWCA Civ 804 (CA)

In this claim for possession, the two defendant tenants had constructed a chalet on a plot, which they leased on a naturist resort from S Ltd. In 1992 the tenants were granted a yearly tenancy of the chalet and subsequently occupied the same as their home. S Ltd served a six-month notice to quit on the tenants, who contended they were assured tenants and so their tenancy ought to be determined in accordance with the Housing Act 1988. At first instance, the judge found that a house which could not be moved except by being dismantled must have been intended to form part of the realty. Further, the parties’ belief that the tenant owned the building could not control the operation of the law and the chalet must have been let as a dwelling, subject to an assured tenancy.

The Court of Appeal dismissed S Ltd’s appeal, and held that it had plainly been open to the judge to find that the chalet had become part of the land. The tenants occupied the chalet as their home, and it could not be moved without being dismantled. It was irrelevant that both the freeholder and tenants believed that the building belonged to the tenants. If the chalet was part of the land, it following that it was automatically demised to the tenants under the tenancy of the plat granted in 1992. As the letting was of a separate dwelling the tenancy was an assured tenancy.

Transfer of Tenancies, Part IV of Family Law Act 1996

Guerroudj v Rymarczyk [2015] EWCA Civ 743

The parties to this action were former partners, who had entered into a joint tenancy of a council-owned flat. One of the principal reasons for being granted the tenancy was Mr Guerroudj’s back condition. However, their relationship broke down and both parties issued proceedings for a transfer of the tenancy pursuant to Part IV of the Family Law Act 1996. Initially, the judge granted a transfer of the tenancy to Mr. Guerroudj. It was regarded as decisive that Mr. G was in a position to compensate Ms. R for the difficulties she would face in leaving the flat. However, at a further hearing, Ms. Rymarczyk adduced evidence to show that Mr. G would likely have “priority need” whereas Ms. R would not be able to afford private rented accommodation. In light of such an argument from Ms. R, the judge ordered the tenancy to be transferred to her instead. The Court of Appeal held that the judge had not erred in law by so ordering the tenancy to be transferred to Ms. R.