Full property update

Landlord and Tenant – Formalities for lease creation

Most land transactions require certain formalities to be observed. Leases normally have to be created by deed. However, certain leases can be created under section 54 Law of Property Act 1925 without the need for any writing at all. For a lease to come within section 54, it must:

• be for a term not exceeding three years. Periodic tenancies (tenancies which are not for a fixed term, but run e.g. from week to week, month to month, or year to year) fall within this definition;
• take effect in possession. In other words, reversionary leases (where the term starts later than the date the lease is completed) are excluded from this section; and
• reserve the best rent reasonably obtainable without taking a fine. This means the market rent for the premises.

It is this last requirement which came under the spotlight in Fitzkriston LLP v Panayi.

P occupied a commercial unit which had been purchased by F. The only written evidence of the basis of P's occupation was a document which purported to grant a tenancy for one year, at a rent of £4,000 per annum, payable monthly in advance. The document had not been signed by the then freeholder, and so was not a valid deed. P therefore had to show that he had a tenancy pursuant to section 54 of the Law of Property Act. If established, such a tenancy would be an overriding interest binding F as purchaser of the unit, and would be protected by the Landlord and Tenant Act 1954 such that P would also have security of tenure.

The Court of Appeal focused on the rent paid under the arrangement. Evidence before the court showed that the market rent for the premises at the relevant time was between £12,000 and £20,000 per annum. The court therefore rejected the suggestion that P had a valid lease under section 54. The most P's interest could amount to was a tenancy at will, which could be determined at any time and would not be protected by the Landlord & Tenant Act 1954.

Things to consider

Informal arrangements such as this are not uncommon. The risk for a building owner or potential developer is that, by virtue of possession coupled with regular payments of "rent", an occupier has a periodic tenancy under section 54, and has therefore acquired security of tenure. This case shows that the courts are willing to scrutinise the terms of such arrangements to see whether they fall within the strict terms of section 54. For occupiers, it illustrates the potential vulnerability of relying on letting arrangements which are not formally created by deed.

Landlord and Tenant – Refund of licence fee

In Edstaff Ltd v Anglo Overseas Group (Properties) Ltd, A granted a licence to E to occupy premises. The licence fee was £450 per month plus VAT. The licence contained a provision that it could be determined by either party on giving one month's notice to the other. After a couple of months, E negotiated with A to pay 12 months' licence fee up front, in return for a small discount on the fee. E duly paid A £6,000, equating to approximately £425 per month plus VAT. E emailed A requesting confirmation that the termination provisions in the licence would be suspended during that 12 month period.

Approximately eight months later, E gave a month's notice to terminate the licence. It claimed a refund of the fee it had paid for the remaining three months. The two lower courts found that the effect of the revised arrangement was that A would waive its right to terminate on a month's notice but that there was nothing which provided that E would waive its right to do so, and ordered A to refund E.

The Court of Appeal disagreed. It held that the email could only be construed as suspending both parties' rights to terminate for the duration of the arrangement. E had secured its right to occupy for a further 12 months, but precluded its earlier departure without forfeiting the remainder of the licence fee. A was assured of its licence fee for a full 12 months, but could not terminate if it wished to make other, more profitable use of the premises during that period.

Things to consider

While this decision rests very much on its facts and relates to a licence, it serves as a reminder of the principles which apply when a tenant exercises a break clause under a lease. Where (as is usual) rent is payable quarterly in advance, the generally accepted position is that rent is not apportionable in the event that the break is operated. In other words, the full quarter's rent will be due even though the lease will end part way through the quarter, unless the lease provides otherwise.

Restrictive covenants

A transfer of land in 2000 between Easington District Council and a private individual contained a covenant not to use the property other than as a coach depot and associated bungalow for residential use.

In 2005, planning permission was granted by Easington District Council to develop the site for residential housing. The owner applied to the Lands Tribunal under section 84 Law of Property Act 1925 for the discharge or modification of the restrictive covenant.

Under section 84, a covenant may be discharged or modified on a number of grounds:

• That by reason of changes in the character of the property or the neighbourhood, the restriction ought to be deemed obsolete; or
• That the continued existence of the covenant would impede some reasonable use of the land, money would be adequate compensation to the person entitled to the benefit of the covenant and either the covenant secures no practical benefit or it is contrary to the public interest; or
• That the person with the benefit of the covenant consents to its modification; or

• That the proposed discharge or modification will not injure the person with the benefit of the covenant.

It was agreed between the parties that residential development would be a reasonable use of the property. The question was therefore whether the restriction secured a practical benefit of substantial value or advantage to the council. In this case the covenant was not, as is more common, imposed to prevent a loss of amenity to the benefited land. Instead, the council wanted the ability to control the development and use of the burdened land and prevent complaints from future householders that would curtail the existing and future use of the surrounding industrial estate.

The Lands Tribunal held that, under the circumstances, there was a close coincidence between the council's role as landowner and as local planning authority. The grant of planning permission showed that the practical benefits secured by the restriction were not of substantial advantage to the council. Those benefits were considered by the council in the light of the planning application and were overridden in favour of residential development. The Tribunal therefore concluded that there was no loss of value or amenity arising from the discharge or modification of the restriction, nor would the council be disadvantaged by it.

Having reached a conclusion on that ground, the Tribunal also found that the final ground (that the proposed discharge would not injure the council) was made out. However, it did not find that the third ground set out above was satisfied. The applicant had tried to argue that the grant of planning permission constituted an implied consent to the modification or discharge of the covenant. The Tribunal held that the council, as a local authority, fulfilled multiple functions and that the exercise of one of those functions by one department did not imply acceptance of that decision in relation to another function. Nor could it be said that the failure of the estates department at the council to object to the planning application constituted an agreement by omission.

Things to consider

The Lands Tribunal has the power, under section 84, to order the applicant to pay compensation to the person entitled to the benefit of the restriction which has been modified or discharged. Compensation can be paid under either, but not both, of the following heads:

• a sum to make up for any loss or disadvantage suffered by that person in consequence of the discharge or modification; or

• a sum to make up for any effect which the restriction had, at the time when it was imposed, in reducing the consideration then received for the land affected by it.

In this case, having concluded that the council would not suffer any loss or disadvantage, the Tribunal awarded compensation under the second head, taking into account the hope value of the land being used for residential development.

Re Alisha House, Lands Tribunal LP/83/2005

The requirements for a valid contract

Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 continues to present a trap for the unwary. Under section 2, a contract for the sale or other disposition of an interest in land must:

• be in writing;
• be signed by, or on behalf of both parties; and
• incorporate all the terms which have been expressly agreed between those parties.

The most common situation in which section 2 causes difficulties is where contracting parties agree to vary a contract which has already been exchanged. Unless the variation itself complies with section 2, the variation will be unenforceable, although provided the original contract complied with that section it will continue to be enforceable in its unamended form. See for example Eyestorm Ltd v Hoptonacres Homes Ltd, covered in January's Property Update.

However, section 2 also applies where the original contract entered into by the parties does not record all the terms which they had expressly agreed. In Oun v Ahmad, the parties had signed two separate documents on the same day. The first was a normal contract for sale. The second was a short form document which set out how the purchase price was to be apportioned between the building, the goodwill of the business and the fixtures and fittings.

The court found that the first document did not create a valid contract for sale under section 2, as it did not include the provisions governing apportionment of the price. The question was therefore whether the contract could be rectified so as to include those provisions, and make it valid.

Section 2 does envisage that rectification may be used to validate a contract which would otherwise be invalid. Where the written document does not incorporate all of the terms expressly agreed, the courts have the power to order rectification if the parties have a continuing common intention in relation to the matter to be rectified, but by mistake the document does not reflect that common intention.

The buyer in this case pointed out that the parties intended to enter into a legally binding contract. If the first document did not comply with section 2 because it omitted the apportionment of the price which had been expressly agreed, then the parties had made a mistake as to the legal effect of that document. The buyer argued that the court could correct that mistake by rectification, which would then reflect the parties' common intention to be legally bound.

The High Court disagreed. It held that rectification was about setting the record straight where a mistake in the drafting means the document does not reflect the parties' common intention. In this case, the express agreement to omit the apportionment provisions meant that there was no defect or mistake in the recording of the agreement. The court held that it was beyond its power when rectifying a document to write into it a term which the parties had expressly agreed should not be included.

Things to consider

In reaching its decision, the court was mindful of the legislative objective of section 2. Clearly, if rectification were available in every case where the parties had omitted a term from their written agreement, this would undermine the certainty which section 2 is designed to promote.

It appears that the courts are continuing to apply section 2 strictly. While rectification may be available in certain circumstances to "rescue" a contract which would otherwise fail the section 2 test, it cannot be relied on in all cases. The only safe course of action is to ensure that all the terms which the parties have agreed are incorporated in one document (or, where contracts are exchanged, in each).

Land Registration – alteration of the register

Under the Land Registration Act 2002, the registrar may alter the register for the purposes of:

• correcting a mistake;
• bringing the register up to date;
• giving effect to any estate, right or interest excepted from the effect of registration (see below); or
• removing a superfluous entry.

In Wells v Pilling Parish Council, Mr Wells was registered with possessory title to part of the sands at Morecombe Bay. Subsequently, Pilling Parish Council wrote to the Land Registrar seeking rectification or closure of part of the title. The Council alleged that Mr Wells did not satisfy the factual requirements which were necessary to prove adverse possession entitling him to be registered as proprietor with possessory title. Mr Wells challenged the Council's right to make such an application.

Registration with possessory title confers a lesser quality of title on the proprietor than registration with absolute title. In addition to the matters to which a property with absolute title is subject, land registered with possessory title is also subject to any estate, right or interest which was existing at the time of registration and which is adverse to the proprietor's title. The Council did not assert that it had such an estate, right or interest.

The Land Registry adjudicator permitted the Council's application in principle, without deciding it on the merits. He did so on the basis that there is no express restriction in the Land Registration Act which limits the category of person who can apply for the alteration of the register, and that consequently it was not necessary for the Council to establish that it was asserting a right in land adverse to Mr Wells. Mr Wells appealed.

The High Court held that the issue was whether the application made by the Council to alter the register was a matter of private law or a matter of public law. If the application to alter the register was properly categorised as private law proceedings, then the common law requires the applicant to have sufficient standing to bring a claim. It was common ground between the parties that on the facts of the case the Council had no such standing.

The Council referred to section 73 of the Act, pursuant to which any person may object to an application to the registrar. It pointed out that, had it known of Mr Wells' application to become the first registered proprietor, it would have been able to lodge an objection under section 73, which contains no requirement as to standing. The Council therefore argued that to deny it the opportunity to apply for subsequent alteration of the register was anomalous. The court noted the discrepancy, but did not find that it altered the substance of the question, which was whether the matter was one of private or public law.

The court held that the registration of a person as proprietor of land is concerned with conferring upon him private law rights. This was illustrated by the fact that the effect of the closure of the title would be to remove Mr Wells' freehold estate, which was undoubtedly a question of private rights. The fact that those private law rights are recorded in a register which is open to the public did not alter the fundamental nature of those rights. The Council's application was accordingly dismissed.

Things to consider

It may seem rather surprising that the Land Registration Act 2002, in other respects so comprehensive, does not contain any provisions governing who may apply to alter the register. This case is helpful confirmation that a person must have sufficient standing, as a matter of private law, to make such an application.

The above analyses were written by Sarah Allen, associate in Wragge & Co's Real Estate group.

Planning

Increase in planning related fees

Planning fees have changed with effect from 6 April 2008 under amendment regulations. Guidance is provided in Circular 04/2008.

The regulations and the Circular apply to England only. No doubt further regulations will follow for Scotland and Wales.

Applications governed by the Circular include:

• Applications for permission (including retrospective applications).
• Applications for "variation" of a condition under section 73 Town and Country Planning Act.
• Requests for written confirmation of compliance with conditions (this is new).
• Reserved matters applications.
• "Deemed" applications.
• Applications by local authorities to develop their own land.
• Prior approval applications.
• Advertisement consent applications.
• Monitoring of landfill and minerals permissions.

The guidance does not cover the additional fees under section 93 of the Local Government Act 2003, where the planning authority may charge for pre-application discussions.

The key points of the Circular are summarised below.

Requests for Confirmation of compliance with Conditions (new fee)

This carries a fee of £85 per request. The fee will be payable on all requests made after 6 April 2008, whether or not the permission was granted before that date. Payment must accompany the application. The fee will be refunded if no confirmation is given or if the Local Planning Authority declines to give a confirmation within 12 weeks.

Applications for Outline Permission

Site area of 2.5 ha or less - £335 per 0.1ha
Site area of more than 2.5ha- £8285 for first 2.6ha plus £100 for each additional 0.1ha

Applications for Reserved Matters

Access, appearance, landscaping, layout and scale.

Applications for one, some or all reserved matters are charged at the same rate as a full application for similar development (see fee categories below). The fee paid on the outline permission is ignored.

"Hybrid" Applications

I.E. Outline on part of the site; full for the rest.

Note that the Local Planning Authority has a discretion to refuse to accept such applications.

Fees are calculated on each part of the site and added together. There is no maximum.

Fee Categories (for full applications)

Residential (Category 1)

For first 50 dwellings - £335 per dwelling
Over 50 dwellings - £16,565 for first 50 plus £100 for each additional unit

Maximum £250,000

Non Residential (Category 2)

Where no new floorspace is created, or not more than 40 sq m new floorspace £170 (total)
Between 40 sq m and 75 sq m - £335 (total)
Between 75 sq m and 3750 sq m - £335 for each 75 sq m
Greater than 3750 sq m - £16,565 plus £100 for each 75 sq m above 3750

Maximum £250,000

Agricultural (Category 3)

Outline - as above subject to maximum £125,000
Full – 465 sq m or less - £70
Between 465 and 540 sq m - £335
Between 465 and 4215 sq m - £335 for first 540 sq m plus £335 for each 75 sq m over 540
Greater than 4215 sq m - £16565 plus £100 for each 75 sq m over 4215

Maximum £250,000

Householder Extensions/Alteration (Category 6)

Flat rate fee - £150
If for 2 or more dwellings - £259 in total

Conversion to a dwelling (Category 10)

£335 for each additional dwelling created up to 50 dwellings.
For more than 50, £16,565 plus £100 for each additional unit over 50.

Maximum £250,000

Other matters

Mixed Use Development

Residential and non-residential.
The calculation is more complex depending on whether there is common space (e.g. access), but essentially the fees for the various areas are calculated and added together.

Prior Approvals (under the General Permitted Development Order)

Agriculture and Forestry - £70
Electronic Communications Code Systems - £335
Demolition - £70

VAT

The Circular confirms that planning applications are processed wholly within Government (local or national) and are therefore non-business activity for VAT purposes. Consequently, there is no VAT on planning fees.

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