Brexit isn’t frustrating…at least for leases

Landlords can (for now at least) breathe a sigh of relief as the High Court has ruled that a tenant cannot bring its obligations under a lease to an end by invoking the doctrine of frustration simply because it will have no option but to relocate if/when the UK leaves the EU.

In Canary Wharf (B4) T1 Ltd and others v European Medicines Agency [2019] EWHC 335 (Ch), the Court held that even though the European Medicines Agency (“EMA“) would be forced under EU law to relocate outside the UK after Brexit the nature of the bargain between the parties was not made radically different by Brexit and the lease is therefore not frustrated.  On the contrary, the inclusion of carefully negotiated alienation provisions in the lease indicated that the parties had contemplated that the EMA might at some point wish to dispose of its interest.  The EMA will therefore remain fully liable under the lease for the remainder of the term, unless of course it successfully appeals this ruling.

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Opening the door to community and landlord engagement

This article was first published on Lexis®PSL Property on 24 January 2019. 

Fiona Sawyer, professional support lawyer in the planning team at Herbert Smith Freehills LLP, and Frances Edwards, senior associate and specialist real estate litigator at the firm, point out that although the government’s ‘open doors’ scheme will certainly help reinstate the high street as a destination for the community, the reality is that town centre rents need to be cheaper and action taken to ameliorate the cost of business rates to enable community uses to occupy town centre premises on a longer-term basis.

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Real Estate EP4: Brexit and the UK real estate market

In this podcast, Herbert Smith Freehills’ Matthew Bonye and Tom Leech QC discuss the important Canary Wharf Group v European Medicines Agency court case.  This case is highly relevant to real estate development. The tenant, the European Medicines Agency (EMA), argues that Brexit is a frustrating event for its lease and that it can assert that the lease is thereby terminated. If EMA wins, then it can only be on the basis that the law of frustration is considerably wider than it is currently thought to be: until now, there is no English case where a lease has ended due to frustration. If a lease can come to an end due to frustration, then how will this affect investment values and therefore development appraisals, particularly for longer-term commercial leases such as those for anchor tenants or whole building lets to major banks and other institutions, often a key element of a development scheme? Matthew Bonye and Tom Leech QC discuss how the law of frustration has developed and whether this may open the floodgates for other claims by tenants where the parties have not legislated in their lease for an unexpected turn of events in the future.

Our Brexit Hub has further in-depth, sector-by-sector Brexit analysis.

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Proposed changes to permitted development rights and use classes – impact on developers and landlords

Two key themes of the Budget on 29 October 2018 were increasing the supply of housing and improving the health of high streets and town centres. Published with the Budget was the consultation ‘Planning reform: supporting the high street and increasing the delivery of new homes’. Also announced was the government’s ‘Open Doors’ project, aiming to help improve the vitality of town centres by facilitating meanwhile use of vacant units. The ‘Planning reform’ consultation closes on 14 January 2019. A call for applications from landlords who wish to pilot the Open Doors project closes on 31 December 2018. We have prepared a briefing for clients, summarising key proposals that will be of interest to retail landlords, developers and advisers and assessing how these might impact new or existing developments and the lettings of these assets.

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Indigestion for landlords: a new acid test for redevelopment under ground (f)

In October, we wrote about the Supreme Court case S. Franses Ltd v The Cavendish Hotel (London) Limited [2018] UKSC 62, concerning a landlord’s ability to oppose a lease renewal under the Landlord and Tenant Act 1954 (the “Act”) using ground (f) (redevelopment). Yesterday, the Supreme Court handed down judgment in favour of the appellant tenant. On face-value, the implications of this case seem to be tenant-friendly; however, here we discuss further the commercial implications of the ruling for both landlords and tenants. Continue reading

Landlords’ motives for redevelopment – good, bad or irrelevant?

Today the Supreme Court will hear the case of S. Franses Ltd v The Cavendish Hotel (London) Limited, a case which property litigators have been following closely since last year. The case concerns a landlord’s ability to oppose a lease renewal under the Landlord and Tenant Act 1954 (the “Act”) using ground (f) (redevelopment). If the tenant is successful in today’s hearing, the evidential burden on landlords contemplating redevelopment could increase dramatically. Continue reading

Residential leasehold – time for change?

At the end of July, hard on the heels of the Housing White Paper published in February, DCLG issued a Consultation Paper on “Tackling unfair practices in the leasehold market”. If you wish to make your voice heard prompt action is needed – the period for responses expires on 19 September.

The main points which are proposed to be covered in future legislation are:

  • Cutting back on the future sale of freestanding houses on a leasehold basis (unfair fees have been charged for extensions etc), save where there is good reason to protect local character or amenities.
  • Limiting the charging and increase of ground rents on new flat leases over 21 years in duration (recent publicity has focused on ten-year doubling of rents which, if not capped, can reduce the price or even make the flat unsaleable).
  • How can we make the (little-used) commonhold regime fit for purpose? Briefly, this combines ownership of a freehold unit with membership of a corporate body which manages the common parts. A commonhold community statement is an essential feature, much of which is standard.
  • What else should be done to tackle “abuse of leasehold” (to adopt DCLG’s wording)? This may include reform of existing leasehold terms and a review of the cost of acquiring the freehold (known as “enfranchisement”).

This Consultation is very much about protecting the interests of the consumer who was either not made fully aware of the true cost of buying a leasehold interest (on top of paying the original price) or who was sold the property on a “take it or leave it” basis, with no ability to negotiate the terms of sale. First-time buyers would have been particularly vulnerable to the latter practice and may not have been properly advised. Continue reading

When quiet enjoyment means just that

Author: Julian Pollock, Partner, Real Estate, London

Earlier this year, the courts decided that, even if there is an express right to carry out works in a lease, a landlord cannot ride a coach and horses through a quiet enjoyment covenant or the obligation not to derogate from grant.  They must take all reasonable steps to minimise disturbance to their tenants, including:

  • notifying the tenant as part of lease negotiations of any intended works;
  • keeping the tenant notified of the programme of works, how long they will last and, how disturbance is proposed to be minimised;
  • ensuring that all practical measures are implemented by the contractor and project manager; and
  • bearing in mind that a higher standard of reasonableness may be required where the landlord is carrying out works for its own benefit.

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Clearing a development site – using Torts Act notices

Author: Matt Leggett, Associate, Real Estate, London

Piecing together a large or complex development site inevitably involves dealing with tenants and occupiers in order to obtain vacant possession. On vacating the site, those tenants and occupiers often leave things behind. Depending on the nature of the site, this can include office equipment, stock, furniture, light or heavy machinery, vehicles and vehicle parts or scrap materials.

Can these items be thrown away? Can they be sold?

Unless the items are obviously abandoned worthless rubbish (i.e. refuse), the answer is usually no. First of all, there may be a question as to who actually owned those items – it may not be the tenant, especially if dealing with items that may be owned by a third party e.g. under a hire purchase agreement. If there is any doubt, then this may need investigating and if a third party tries to claim the items then it is sensible to seek proof of ownership, to protect against any argument by the tenant or occupier that you have given items away incorrectly.  

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Development – a dampener on dilapidations claims?

Author: Julia Tobbell, Senior Associate, Real Estate Dispute Resolution, London

Whilst a developer is in the early stages of planning and finance, it may be happy to leave the current tenants in situ to generate a little extra income before the development starts (provided it can remove the tenants when the time comes!).  If that is the case, the parties will follow the usual end of lease procedure in the months running up to the termination date.  In practical terms, this means ensuring that the tenant is making arrangements to vacate and setting out the landlord's claim for dilapidations.  This blog entry addresses the approach developers can take to these claims for dilapidations.

The usual position, upon lease termination, is that the tenant owes the landlord damages in respect of any breaches of its repairing covenants (which can include reinstatement, redecoration, removal of fixtures and so on).  There are a complex series of rules which govern the quantum of damages payable, but in many cases the damages will equate to the actual cost that the landlord will incur in carrying out the works necessary to bring the premises back up to the required standard.  

However, a developer who is planning on demolishing the premises patently has no intention of carrying out any such works.   It would therefore be unfair to expect a tenant to pay in full for the cost of the works when they will never be carried out and, indeed, the premises may shortly cease to exist.  Parliament has long since recognised this potential injustice and addressed it in section 18(1) Landlord and Tenant Act 1927.  The provision contains two 'limbs':

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