23rd Dec 2015

A property lawyer's Christmas

1. Residential tenancies and businesses at home

In one of the last pieces of new legislation before the 2015 election, the Government made a minor change to provide that security of tenure for business tenancies does not apply to tenancies of dwellings granted to individuals for occupation as homes when those individuals, with the consent of the landlord, carry on a business at home.So, residential landlords can now be more relaxed about allowing their residential tenants to do so, safe in the knowledge that they will not acquire the greater protection afforded to normal business tenants.

2. Housing and more housing, but the Government boot is stuck into buy-to-let landlords and purchasers of second homes

One of the key objectives of the new Government is to build more housing by – 250, 000 a year and 1 million by 2020.Of the raft of announcements made, two which affect property lawyers are:

    1. Permitted development rights (i.e. the right to change use without the need for planning permission) from office to residential (B1(a) to C3).The previous temporary right is now permanent(with some exemptions including London boroughs and Manchester city centre until 2019).A small step as part of the Government’s package of housing initiatives, which will help breathe new life into underused commercial space and will be welcomed by developers looking to convert offices to homes.
    2. Not content with the removal of tax relief on mortgages for buy to let properties announced earlier this year, Chancellor George Osborne announced new SDLT rates which will apply from 1st April 2016. Not only will there be an extra 3%, but the threshold has been reduced from £125K to £40k, so buyers will start paying SDLT at 3% from this lower limit on buy to let properties and second homes.The idea, it seems, is to remove the threat of competition from buy to let and second home buyers and allow (particularly) first time buyers more freedom of choice.

3. Penalties - here's one type it is better to miss

One of the oldest rules of law has been re-stated in two recent Supreme Court cases.

It is common when entering into commercial contracts to provide that, if one party commits a breach of that contract, the other may be compensated without the necessity of having to bring Court proceedings.There is a risk however that, if the provisions, are not correctly drawn, they will not be effective.The basic rule is that a provision in a contract which seeks to impose a penalty, as opposed to a genuine pre-estimate of damages for loss caused by the breach of the contract, is unenforceable.

a. Cavendish Square Holdings BVv. El Makdessi(2015) – An agreement for the sale and purchase of a business provided that, if the seller breached restrictive covenants, the buyer did not have to pay future instalments of the purchase price.The Court regarded this as a price adjustment clause, not a penalty.It was perfectly legitimate for the buyer to seek to ensure that the restrictive covenants were complied, as these were critical to the value of the business to the buyer.

b. ParkingEye Ltd v. Beavis (2015) - Here the rule against penalties applied (to an £85 charge for overstaying the 2 hour limit in a privately run car park), but the actual charge was not a penalty as ParkingEye had a legitimate interest in charging overstaying motorists which extended beyond the recovery of loss, namely the efficient management of the car park.(Query how high the charge would have to be to be classified as a penalty?)The layman may consider it odd that two parties, each with (on the face of it) equal bargaining power who reach agreement on a contract, may find that the Court intervenes at a later stage (when the parties are obviously no longer in agreement) to determine that an element of that contract is not enforceable, but it is worth remembering that that contract, which you thought you had cleverly negotiated to leave you more than adequately rewarded when things go wrong, may not be so clever after all.

4. Tenants beware when exercising a right to break a lease

In contrast to the 1980s and 1990s (and earlier), when commercial lease term lengths were 20 to 25 years and tenants were tied in for long periods, typical present day lease lengths are 3, 5 and 10 years with the tenant having the benefit of a break clause entitling it to call a halt to the arrangement at some point during the term.However tenant should be aware of the potential pitfalls.Cleverly drafted (by the landlord) break clauses can trip up the unwary.One issue, which has been confirmed by a recent Supreme Court case, concerns the payment of rent (and other sums such as insurance and service charge) in advance.Typically, a lease will say that the tenant must pay these sums quarterly in advance on the “quarter days” (as they are known).What happens, however, if the date upon which the tenant may exercise its break falls between two quarter days?In a decision which many will find puzzling and downright unfair on tenants, but which will delight landlords, the case of Marks & Spencer v BNP Paribas provides certainty that a tenant cannot recover rent paid in advance for the period after the break date where it exercises a break part way through a rent quarter unless the lease specifically provides so. It is essential, therefore, that tenants ensure that, in leases which have a break clause, there is a contractual obligation on the landlord to repay the tenant all sums paid by it in advance which relate to a period after the break date.Without this, the Supreme Court has made clear that, unfair though it may appear, one will not be implied

5. Squatters – criminal acts, but no effect on adverse possession claims

It is now a criminal offence to trespass by living in a residential building. In Best v.Chief Land Registrar) the Chief Land Registrar was concerned that a trespasser may improperly gain from his criminal conduct by being able to claim adverse possession out of his criminal act. In a (some would say) slightly odd decision, the Court of Appeal held that criminal trespass should not have an adverse effect on a claim for adverse possession of registered land.

Written by Richard Wheeldon of Berwins Solicitors.

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