Full property update

Service Charge

In Leonora Investment Company Ltd v Mott Macdonald Ltd, the tenant had separate leases of four floors in a thirteen storey building. Each lease provided that the tenant would pay a fair proportion of the service charge costs for each service charge year. The proportion was to be assessed by the landlord or its surveyor, according to a reasonable and proper basis of apportionment from time to time.

The tenant made the usual quarterly payments on account based on an estimate of service charge costs for that year. The lease provided that, at the end of the service charge year, the landlord would prepare a statement of the actual service charge costs. If this resulted in an overpayment having been made by the tenant, this would be credited to the tenant. If the end of year statement resulted in a deficit, this would be demanded from the tenant.

The landlord prepared a statement at the end of the service charge year ending 24 December 2002. However, an item of expenditure was erroneously omitted. On 15 January 2003, the landlord wrote to the tenant requesting an additional payment to cover this expenditure.

The tenant argued that the landlord was only entitled to raise one balancing statement and that therefore it had discharged its obligations to pay the service charge for the relevant year. It also argued that the additional demand from the landlord did not comply with the lease because it did not incorporate a revised statement of total costs and because it did not give the breakdown of the amount payable for each of the tenant's four leases.

The court found that, on the terms of the lease, the landlord was not restricted to the service of just one balancing statement. However, to be valid under the lease, the new demand should have included a revised statement of total service charge costs for the service charge year in question and should have set out the proportion payable by the tenant under each of its leases. The lease's requirements that the proportion was to be fair and was to be made on a reasonable and proper basis were for the tenant's protection, to enable the tenant to challenge an alleged liability which it considered was not fair, reasonable or proper.

Things to consider

In Universities Superannuation Scheme v Marks & Spencer Plc, a landlord was allowed to re-open service charge statements on the basis that the proportion payable by the tenant had been under-calculated. This case differs from the Marks & Spencer case because here the landlord was seeking to revise the amount of the total costs, rather than the proportion of those costs which was payable by the tenant. Although both cases are of assistance to landlords, whether a landlord may revise an end of year service charge statement will always depend on the wording of the lease.

Where the lease lays down pre-conditions which must be fulfilled before the service charge is payable by the tenant, these must be adhered to. Landlords and managing agents should examine the service charge provisions in leases carefully and ensure that any demands issued comply.

The lease/licence test

Whether an occupier has a lease or a mere contractual licence is important. Licences do not usually bind third parties and do not benefit from the security of tenure provisions in the Landlord & Tenant Act 1954.

The traditional test for a lease is that the occupier has exclusive possession of the premises, for a fixed term, at a rent, although the last element need not always be present. The label which the parties put on the arrangement is not conclusive – the court will look at the substance of the relationship which has been created.

In Cameron Ltd v Rolls Royce PLC, the tenant had a lease which was contracted out of the Landlord & Tenant Act 1954. After that lease expired, it remained in occupation while negotiations for a new lease were taking place. Eventually an agreement for a new, contracted out lease was entered into. The agreement provided for the tenant to occupy the property as a licensee during the period between the date of the agreement and the lease itself being granted. Occupation was to be on the same terms as the new lease and the tenant was to pay a licence fee equivalent to the rent payable under that lease.

When the time came for the tenant to enter into the new lease, it refused to do so. It claimed that it already had a tenancy which had arisen under the interim arrangements in the agreement for lease, and that that tenancy was protected by the 1954 Act.

The judge looked at what the parties were trying to achieve when they entered into the agreement. He concluded that they could not have intended the grant of a tenancy, and particularly not one to which the 1954 Act applied. The original lease had been contracted out, and the parties had also gone through a contracting out procedure in relation to the new lease.

Following the seminal case in this area; Street v Mountford, the court held that there are instances where the three elements of exclusive possession, a term and a rent are consistent with a licence and only a licence. For example, where the right to exclusive possession can be explained on the basis of a legal relationship other than a tenancy. The court distinguished between instances where the purported licence is a stand alone arrangement, and those where the licence is merely part of a bigger picture.

In this case, the occupation was clearly referable to the agreement for the new tenancy. The position was no different from a buyer who went into occupation before completion pursuant to a contract to purchase the property. The agreement had created a licence, pending completion of the lease.

In any event, the landlord could have relied on section 28 of the 1954 Act. This provides that, where a landlord and tenant enter into an agreement for a new lease of the property from a future date, the current tenancy will cease to be protected by the Act.

Things to consider

Care should be taken when negotiating agreements which are intended to be mere licences. It is not enough simply to avoid using the terminology of "landlord" and "tenant". Nor will it necessarily be sufficient to include what is commonly known as a "lift and shift" clause, where the occupier can be relocated by the owner. Such clauses are designed to negate the grant of exclusive possession. However, if a court found that it was never intended that the relocation clause be operated, or that it would be overly difficult to relocate the tenant, it may still conclude that the agreement was a lease. Legal advice should always be sought to ensure that security of tenure is not inadvertently created.

Estate management - regulations

The case of Shah v Colvia Management Company Ltd concerned a large industrial estate where each unit was let on a long lease. The estate was managed by a management company which was owned and run by the tenants. Each tenant had the right (in common with the others) to use the car parks on the estate, subject to reasonable regulations laid down by the management company from time to time. No individual spaces were allocated to tenants.

The car parks on the estate were very congested. The problem was exacerbated because several of the tenants operated vehicle repair businesses. These tenants frequently left vehicles in the car parks overnight, which made it difficult for other tenants to find spaces in the morning.

The management company received a rates bill in respect of the car parks. Initial attempts to put this through the service charge met with opposition from tenants who had difficulties parking. Instead, the management company decided to introduce a scheme to ban overnight parking on the estate in all but a number of designated spaces. A charging system would operate for tenants who wished to park overnight in the permitted spaces. The revenue raised would go to meet the rates bill.

The scheme was challenged by the vehicle repairers. They did not contend that the management company, as part of its power to prescribe reasonable regulations, could not ban overnight parking. Nor did they contest the company's proposal to charge for use of the car parks. However, they alleged that the scheme was discriminatory. The vehicle repairers were the only tenants who were likely to make use of the overnight parking facility. Since the charges had been set by reference to the amount required to meet the business rates bill for the car parks, the rates liability was effectively being met exclusively by the vehicle repairers. They argued that this was an expense which should be shared amongst all the tenants via the service charge.

The High Court agreed with the vehicle repairers. However, it found that this did not preclude the introduction of a scheme which charged for overnight parking provided that the charges were set by reference to the market value of such a facility, rather than the amount needed to pay the rates bill. Since there was no evidence of any research being carried out into the market value of overnight parking spaces in the area, it found the scheme to be unreasonable.

The Court of Appeal overturned this decision. It held that the burden of proof was on the vehicle repairers to show that the proposed scheme was unreasonable. This meant proving that the decision to adopt the scheme was not one which a reasonable landlord or management company could have taken in the circumstances.

The court commented that, just because a particular expense can be reimbursed by way of the service charge, that does not mean that it must be, rather than by any other means. Furthermore, since none of the various elements of the management company's income were earmarked for particular expenditure, it would be wrong to regard the prospective receipt by way of parking charges as paying for the rates liability rather than for any other aspect of the company's expenditure. The Court of Appeal found that there was no evidence that the proposed charges were unreasonable and consequently it upheld the scheme.

Things to consider

The test laid down by the Court of Appeal will be helpful to all those with responsibility for property management and for formulating regulations regulating use by occupiers in multi-let buildings or estates. Whether a scheme of regulation is reasonable will depend on its terms, not on how those terms were arrived at by the party putting forward the scheme.

Service of notices

In Vaughan v Von Essen Hotels 5 Ltd, the claimant, Von Essen, had entered into an agreement with Mr & Mrs Vaughan for the purchase of a chain of hotels. Von Essen subsequently needed to make a claim against the Vaughans for breach of a warranty given in the agreement. Claims had to be made before a certain date.

The notices clause in the agreement provided that notices may be served on the Vaughans at their home address, with a copy to their solicitors, marked for the attention of a particular individual. The firm of solicitors to be served was named in the agreement.

By the time Von Essen made its claim, the Vaughans had instructed another firm of solicitors to act for them in connection with other matters relating to the agreement. Von Essen therefore served notice of its claim to the Vaughans at their home address, and copied it to the new firm of solicitors.

The court found that the new firm of solicitors was not authorised to receive service. Therefore Von Essen could not rely on the copy of the notice sent to the new solicitors.

The Vaughans never received the notice addressed to them. Although the agreement contained the usual provisions deeming a notice to be served two business days after posting, these did not apply to the notice sent to the Vaughans' home address. This was because the earlier part of the notices clause, requiring a copy to be sent to the original solicitors, had not been complied with. No valid notice had therefore been served prior to the claims period expiring.

Things to consider

Boilerplate clauses are easily overlooked. However, this case shows that their provisions cannot afford to be ignored. Failure to follow the correct procedure can result in one party losing its rights. We have a specialist team on hand to assist with the drafting and service of notices. Please contact us if you need advice.

This analysis was written by Sarah Allen, associate in Wragge & Co's Real Estate group.

Planning

Increase in Mayor's Planning Powers

On 6 April 2008 the Town and Country Planning (Mayor of London) Order 2008 comes into force. This gives the Mayor power to direct that applications for planning permission of potential strategic importance must be determined by him and not by the local authority. It also sets out situations where the Mayor may give directions to the planning authority.

Applications in the areas set out in the London Thames Gateway Development Corporation (Planning Functions) Order 2005 and the Olympic Delivery Authority (Planning Functions) Order 2006 are not affected by this Order.

Where the Mayor considers that the development proposed by an application would be contrary to the spatial development strategy or otherwise contrary to good strategic planning in Greater London, he may direct the authority to refuse the application.

Where the Mayor considers that the development may have a significant impact on the spatial development strategy, or a significant impact on more than one London Borough, he may direct that he is the local planning authority for the purposes of determining the application instead of the relevant London Borough.

The Order only applies to applications of potential strategic importance. Applications which may be caught are summarised below. For more details, please refer to the Order.

Large scale development

• More than 150 residential units
• Non residential development of more than 100,000sqm in the City, or 20,000sqm in Central London or 15,000sqm elsewhere
• More than 25m high adjoining the Thames or 150m high in the City or 30m high elsewhere
• Extensions to buildings resulting in an increase in height of more than 15m if the limits above would then be exceeded

Major infrastructure

• Mining or waste development exceeding specified limits
• Transport facilities such as an aircraft runway, air passenger terminal or bus station and/or depot
• Class B8 (warehousing) use of more than 4ha

Development which may affect strategic policies

• Loss of residential land
• Development over 4ha which would prejudice the use of land currently used for Class B (light industrial, general industrial or warehousing) purposes
• Development over 2ha which would prejudice the use of land currently used or used within the previous 5 years as a playing field
• Development on Green Belt or Metropolitan Open Land of a building of more than 100sqm or a change of use of such a building
• Development not in accordance with development plan policies for Class A (retail, food and drink), Class B (see above), Class C (residential) and Class D (assembly and leisure and non residential institutions) purposes
• Development which includes more than 200 car parking spaces (except residential)
• Specified waste disposal development or residential development adjoining such development
• Development which does not accord with policies and which is on land of more than 0.7ha used for storing buses and coaches or is used for storing more than 70 buses and coaches.

Amendments to the GPDO – Microgeneration Equipment

The General Permitted Development Order (GPDO) allows certain development to be carried out without planning permission. With effect from 6 April 2008, the GPDO is amended with a new Part 40, which allows for certain domestic microgeneration equipment to be permitted development, subject to specified conditions and limitations.
This will include:

• Installation alteration or replacement of solar equipment on a dwelling house or on a building in the curtilage of a dwellinghouse, or standalone solar equipment within the curtilage of a dwellinghouse (size and special location restrictions apply)
• Installation alteration or replacement of a ground or water source heat pump in the curtilage of a dwellinghouse
• Installation alteration or replacement of a flue as part of a biomass heating system or a combined heat and power system, on a dwellinghouse.

Standard Application Form

A mandatory standard planning application form is being introduced with effect from 6 April.
The form is designed to be used electronically although it will be possible to use hard copies. The form is accessed through the Planning Portal at http://www.planingportal.gov.uk. The form covers applications for outline and full permission, reserved matters consent, householder consents, listed building consent, conservation area consent and advertisement consent, TPO consent, lawful development certificates, prior notifications and removal or "variation" of conditions (section 73 applications).

The form cannot be used for applications for mining operations, or use of land for mineral working deposits, nor for hazardous substance consents.

Circular 02/2008 contains advice on using the form. Annex A to the Circular sets out the national information requirements for each type of application. If these are met the application will be registered as valid.

Planning authorities may accept old forms until 6 May 2008 but from that date they will have no power to accept as valid any application not on the standard form.

This analysis was written by Jan Hebblethwaite, associate in Wragge & Co's Real Estate group.