Real Estate monthly digest - December 2018

Real Estate monthly digest pebbles
  • Submitted 21 December 2018
  • Applicable Law UK
  • Topic Real Estate

Opposing a 1954 Act lease renewal on redevelopment grounds: a firm and settled intention

The Supreme Court has held that a landlord could not oppose the grant of a new tenancy under the Landlord and Tenant Act 1954 on redevelopment grounds, where the works which the landlord intended to carry out had no purpose other than to get rid of the tenant and would not be undertaken if the tenant were to leave voluntarily.

A detailed summary of the case can be found here.

S Franses Ltd v Cavendish Hotel (London) Ltd [2018] UKSC 62.

Mayoral Community Infrastructure Levy 2

Mayoral Community Infrastructure Levy 1 (MCIL), which has been part funding Crossrail 1 for several years, is due to end in April 2019. It will be replaced by Mayoral Community Infrastructure Levy 2 (MCIL2), which will part fund Crossrail 2. As with current MCIL, MCIL2 will be payable in addition to the Community Infrastructure Levy that is payable to local authorities.

The MCIL2 charge is expected to be higher than the current MCIL, and for office development in central London is expected to be up to 50% higher.

MCIL2 will only be charged on development in Greater London pursuant to planning permissions granted after 1 April 2019. The exception to this is in relation to outline planning permissions granted before that date but where the reserved matters are approved after 1 April 2019, in which case MCIL2 will be charged.

It appears that MCIL will continue to be charged after 01 April 2019 for developments carried out pursuant to planning permissions granted before that date.

On 10 December 2018, it was announced that, owing to cost overruns, a loan of up to £1.3bn is to be given to the Mayor of London to help fund the completion of Crossrail 1. This will be repaid through the existing Business Rate Supplement and MCIL. However, it was also announced on the same day that the Mayor “remains fully committed to the Crossrail 2 project and there is a known cost for the scheme. Further discussions will be needed around delivery options in advance of the Government’s Comprehensive Review in 2019”.

Comment

Despite the uncertainty regarding the introduction of MCIL2 caused by recent events concerning the funding of Crossrail 1, developers who are due to submit planning applications or who have existing outline planning permissions for development in Greater London should consider pushing to secure planning permission and reserved matters approvals before 01 April 2019, as there is no certainty that the adoption of MCIL2 will be delayed. This will also be relevant to cost estimates in relation to facility agreements where planning permissions have not yet been granted and which may not be determined prior to 01 April 2019, and to any planning conditional contracts and options.

Waste and landlord’s liability

Earlier this year, Stone v Environment Agency [2018] Env. L.R. 32 made headlines when a landlord was found to be liable for a failure to obtain a relevant waste permit for over 470 tonnes of waste mattresses left at his site following the insolvency of his tenant. In a further reminder of the importance of obtaining appropriate permits, another landlord has been prosecuted in not dissimilar circumstances to those of the first case.

Mr Joyner leased part of his land in Totnes to a business recycling wood. The tenant business exceeded the terms its waste permit having brought more than the 1,000 tonne limit of wood onto the site together with other waste including plasterboard and plastics.

The tenant business ceased trading and approximately 10,000 tonnes of waste was left on site. Mr Joyner sought buyers for the waste wood but it had little commercial value and the cost of removing it would have been around £750,000. Shortly after, the site caught fire.

Mr Joyner was prosecuted and convicted of knowingly permitting controlled waste to be kept on land without an appropriate permit and was fined £12,250. Mr Joyner also faces a claim from the Environment Agency for the cost of clearing the site. The directors of the tenant company were also prosecuted in separate proceedings.

This case is a further reminder to landlords to ensure that:

  • they take appropriate steps to deal with sites abandoned by tenants
  • tenants are appropriately qualified in order to run businesses that have an environmental risk associated with them, and
  • they take measures such as procuring site remediation bonds from tenants in order to protect themselves.

Increasingly landlords may also wish, in order to forewarn of escalating risk, to include obligations in leases to ensure regular assessment and reporting at the tenant’s expense by appropriately qualified consultants in relation to compliance with environmental laws. However, advice should be sought on such terms to ensure that liability for such risks remains with the tenant.

Law Commission consultation - Reinvigorating commonhold: the alternative to leasehold ownership

Following on from the February 2018 call for evidence, and as part of its wider project looking at residential reform, the Law Commission has now published a consultation paper - “Reinvigorating commonhold: the alternative to leasehold ownership”.

Commonhold, which was introduced in England and Wales in 2002, is described as an alternative form of property ownership. The summary paper notes that it enables a person to own the freehold of a “unit” (such as a flat) within a building or development and also become a member of a company which owns and manages the shared areas. The Law Commission’s view is that the answer to many of the inherent problems with leasehold ownership lies with commonhold. The Law Commission’s summary paper identifies various advantages of commonhold over leasehold ownership. In short:

  • Freehold ownership.
  • Removing an “us and them” mindset.
  • Self-management by flat owners.
  • Standardisation of rules and regulations, which should be easy to understand.
  • Flexibility to accommodate change.
  • No risk of forfeiture.

However, despite being available since 2002, Commonhold has simply not taken off. The Law Commission are seeking to address one possible barrier to this, which is identified as “perceived shortcomings in the legal design of the commonhold scheme”. It notes that other perceived barriers such as mortgage lenders’ unwillingness to lend on commonhold units, lack of awareness of commonhold, financial incentives for developers to favour leasehold and a general reluctance to change are outside the scope of the Law Commission project, but that the Government is considering them.

The Law Commission consultation is a detailed document which is over 450 pages in length. However, the Law Commission has summarised the key themes and issues under consideration as follows:

  • How to make converting existing buildings to commonhold easier, cost recovery, the rules of the commonhold, emergency response and dispute resolution. These are identified as areas which will be of interest to homeowners.
  • How to make commonhold work for mixed use and multi-block developments, phased development and incorporating shared ownership leases in commonhold schemes. These are identified as areas under consideration which may be of interest to developers.
  • Issues around commonhold insolvency, enforcement powers and maintenance and termination of commonholds. These are identified as areas of interest to mortgage lenders.
  • Insurance requirements, conveyancing requirements, the needs of commercial tenants and other types of affordable housing are also considered.

The consultation is open until 10 March 2019.

Construction blog

The construction blog this month looks at the following:

  • Government ban on materials rated less fire resistant than A2-s1, d0 in external wall build-ups - what is the likely impact on the construction industry?
  • The decision in Burgess v Lejonvarn where the claimants failed in every aspect of their breach of duty claim against the defendant architect, despite having previously established as a preliminary issue that the architect, who provided free services to friends, owed a duty of care in tort when carrying out those services.
  • JCT contracts and insolvency: should the contractor’s employment be terminated?

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.