Real Estate and Built Environment

Am I being good enough? Good faith obligations in real estate contracts

Thu, 30 Oct 2025 09:25:00 Z

Flagrant breaches of good faith are easy to identify, but also quite rare. In most cases, it is harder to say whether a parties' conduct has crossed the line, and, if so, what the consequences of that should be.

In the following, we look at a recent case where a commercial property agent was found to be in breach of its obligation to act in good faith towards its client, and then consider some general principles that will help parties understand the scope of their own obligations and those with whom they are contracting.

A state of faith

Earlier this year, judgment was handed down in the case of Athena Capital, Raffaele Mincione & Ors v Secretariat of State of the Holy See[1].

It was a remarkable case in that it was the first time an organ of the Vatican State had been sued in England or Wales. It was also notable for its finding of "bad faith" against an agent that had been representing the Holy See in a property deal that went wrong.

The facts of Athena Capital are complex. However, Mr Justice Knowles' assessment of the agent's conduct, and how it amounted to a failure to act in good faith, was clear:

"[he] fell below the standards of communication with the State that could be described as good faith conduct. To state that the value of the Property was £275 million, as Mr Mincione did at the meeting on 20 November 2018, was not frank and was, at least without elaboration, misleading by reference to the sources available to him and in context".

The property in question was eventually sold for £89 million less than the valuation presented to the Holy See.

Mr Justice Knowles went on to say:

"the State had reason to consider itself utterly let down in its experience with the Claimants. The Claimants made no attempt to protect the State from fraudulent bad actors. They took no care towards the State and they put their own interests first".

It is also worth noting, however, that despite their failure to act in good faith, Mr Justice Knowles found that the agent was not necessarily dishonest or fraudulent.

Athena Capital demonstrates that, when the facts justify it, the Court will enforce breaches of an obligation to act in good faith. That said, the circumstances in Athena Capital were extreme, and it is helpful to consider a few other cases to understand how good faith obligations work in practice.

What does good faith *not* require?

To begin with, it is instructive to consider what would generally be considered outside the requirements of the obligation.

First, it does not mean that a party must give up, or act against, its own commercial interests. By way of illustration, in Gold Group Properties Ltd v BDW Trading Ltd[2], it was held that an obligation to act in good faith did not require a party to a development agreement to renegotiate revenue-sharing arrangements to take into account worsening market conditions.

Second, it does not require a party to forgo other contractual rights. In the case of TSG Building Services plc v South Anglia Housing Ltd[3], it was held that a covenant requiring the parties to "work together and individually in the spirit of trust, fairness and mutual co-operation" did not necessarily mean that they had to act in good faith, and that, even if it had, it would not have prevented either party from exercising a contractual right to terminate the agreement.

Therefore, whilst an obligation to act in good faith will mandate certain standards of conduct, its effect is constrained by the wider contractual framework governing the parties' relationship and the freedom to prioritise one's own commercial interests.

What might good faith require?

The exact scope of the obligation will depend on the facts of the case in question. However, the following are some examples of how the Courts have previously interpreted and applied the obligation, and which provide guidance for future cases.

First, the obligation will generally require parties to avoid taking any action that would frustrate the objectives of the contract. In the case of Berkeley Community Villages Ltd v Pullen[4], a promoter had undertaken to arrange planning permission, and then sell a piece of land, in respect of which they were to be paid commission. However, the landowner decided to sell the land, part way through the planning permission process, depriving the promoter of its commission. This was held to be in breach of the landowner's obligation to act in "utmost good faith".

Second, the obligation will usually require full disclosure of relevant material facts. In Horn v Commercial Acceptances[5], a borrower failed to notify the provider of a development loan that it had obtained funding from a third party (rather than put their own money into the deal), and this was held to be in breach of the borrower's duty to act in good faith.

Third, it generally requires parties to progress matters expeditiously and without stalling. By way of obiter remarks, the judge in Glencore Energy UK Ltd v NIS JSC Novi Sad[6] opined that, where parties were required to act in good faith to agree the quantum of a payment, deliberate delay by either party in the negotiation process would have been in breach of good faith.

Fourth, the obligation will likely prevent parties from advancing groundless disputes to try and improve their position under the relevant contract. For example, in the case of, Teesside Gas Transportation Ltd v CATS North Sea Ltd[7] the contract allowed for a reduction in late payment interest, where an invoice was disputed "in good faith". However, the Court held that, where a party knew that there were no substantive grounds for a dispute, it was not acting in good faith to assert that the invoices were disputed.

Faith forwards

The above principles are not exhaustive. The obligation to act in good faith could require parties to take, or refrain from taking, many different types of action. Exactly what the obligation entails will depend on the facts of the specific case in question.

Parties who wish to enforce good faith obligations should take time to consider their position carefully and then develop a reasoned argument as to why they think the other parties' conduct has failed to meet the required standard. Too often, good faith obligations are alleged to have been breached, but without proper thought as to how far the obligation actually goes.

Arguably, the most helpful guidance comes from the cases which describe what good faith does not require a party to do. There is no implied requirement to forgo commercial interests or contractual rights. Accordingly, if a party is otherwise complying with the terms of the contract in question, it is unlikely that they will have failed to act in good faith, apart from in exceptional circumstances. That said, as the recent case of Athena Capital shows, the Courts are not afraid to call out bad faith when they see it.

[1] [2025] EWHC 355 (Comm)

[2] [2010] EWHC 1632 (TCC)

[3] [2013] EWHC 1151 (TCC)

[4] [2007] EWHC 1330 (Ch)

[5] [2011] EWHC 1757 (Ch)

[6] [2023] EWHC 370 (Comm)

[7] [2023] EWHC 370 (Comm)

Whose grease is it anyway?

Mon, 18 Aug 2025 11:02:00 +0100

HLS Leisure Ltd v Darville and Son Ltd [2025] EWHC 1884 (Ch) was an appeal from a decision of the County Court.

The claimant ran a business called Pinks Gentlemen's Club, and the entrance to its premises was not at street level, but rather via a covered loading bay at the back of its landlord's property. A ventilation duct from a fast-food restaurant in the same building evacuated into the loading bay, near the entrance to the claimant's property.

The claimant sued its landlord, and alleged that the ventilation duct was unacceptably noisy and leaked grease into the loading bay, creating an uncomfortable environment for its customers and staff. However, the landlord denied that it was responsible for the ventilation duct on the basis that it formed part of the property demised to the fast-food restaurant.

Under the leases in question, the loading bay was deemed to be among the "common parts" of the landlord's building. As such, the landlord was responsible for its maintenance and upkeep. However, notwithstanding this, the Court held that the ventilation duct was part of the property included in the fast-food restaurant's lease.

In the usual way, the lease to the fast-food restaurant attached a plan outlining the extent of the property included in the lease. The ventilation duct was outside the boundaries of the lease plan.

However, based on the wording of the lease in question, the Court held that because the ventilation system originated in the fast-food restaurant, it was excluded from the landlord's common parts, even though part of it was physically located within the loading bay.

This case serves as a reminder to both landlords and tenants that leases require careful interpretation and that items falling outside the ostensible boundaries of a property can sometimes be deemed to be within them.

As in the matter of HLS Leisure Ltd v Darville and Son Ltd, the question of what is within the boundaries of a property can have significant ramifications, and is a critical part of the case analysis process in all property-related claims.

If you are unsure about the extent of the boundaries to your property, or your obligations to neighbouring owners, do get in touch and we would be glad to assist.

Buyer beware

Tue, 29 Jul 2025 10:53:00 +0100

Caveat emptor (buyer beware) is one of the oldest principles in English law and can be traced back through hundreds of years of legal precedent. In the case of The King v Doctor Gouge (1615), it was applied as follows: “If one doth disseise me of land, and builds a house upon this land, I shall have a judgment for this, and he is not to go into the Chancery to be relieved for this … for in such cases the rule of law is this, caveat emptor.”

The message was clear: buyers take responsibility for the risks involved in purchasing property.

Caveat emptor

More recently, the limits of this principle were tested in Iya Patarkatsishvili and Yevhen Hunyak v William Woodward-Fisher [2025] EWHC 265 (Ch), also known as 'the moth case'. The basic facts are well known. A mansion in Notting Hill was sold for £32.5 million. After moving in, the buyers discovered a massive moth infestation, which would have required a huge scheme of remedial works to cure. The buyers then sued the seller and sought an order requiring him to take back the property, due to statements made by the seller during the conveyancing process.

The reason why the court found in favour of the buyers – and why the usual principle of caveat emptor did not apply – was because the seller was found to have made false representations to the buyers. When asked whether the property had ever been affected by a “vermin infestation”, the seller answered in the negative. Similarly, he asserted that he had never obtained any reports in relation to vermin infestation at the property, and that he was not aware of any defects that would not have been apparent to the buyers upon inspection. These statements were all held to be false.

A party who has relied on a false representation that was made knowingly (in other words, fraudulently) by a counterparty when entering into a contract, is entitled to seek an order for rescission, nullifying the contract and restoring the parties to the position they were in before the contract was entered into. In the moth case, the court found that the seller had known that the statements he made were untrue – or, at the very least, he made them recklessly and without sufficient regard to their truthfulness.

Unravelling the issues

Various defences were raised by the seller during the 11-day trial. However, the presiding judge gave the seller’s arguments short shrift and found that the buyers were entitled to hand back the property to the seller and that they should in turn receive back the purchase price they had paid, together with damages for any additional losses.

The seller first sought to argue that the buyers were not actually aware of the misrepresentations in question and therefore could not have relied on them when deciding whether to purchase the property. However, the court held that the buyers’ conveyancing team had read and considered the relevant statements and advised their clients that they could safely proceed with the transaction, and that this was sufficient to establish reliance.

Then the seller tried to argue that the buyers had unduly delayed bringing their claim for rescission and therefore were not entitled to the remedy. However, the court held that although delay was a potential bar to rescission, the buyers had only been aware of their right to rescind for a period of 7.5 months before commencing court proceedings, which, in the circumstances, did not make rescission unjust.

The seller also attempted to argue that the buyers had affirmed the contract by remaining in the property after they had become aware of their right to rescind. However, the court held that the buyers could not have been expected to move out of the property merely to preserve their right to bring a claim, and that this was very different to a situation where a party was rejecting defective goods, which could easily be handed back.

Finally, the seller argued that the contract should not be rescinded because it would be impossible to restore the parties to their original positions. The court spent a great deal of time considering this argument but ultimately found in favour of the buyers. In particular, the court was not persuaded by the seller’s argument that he was unable to repay the purchase price. Instead, the court ruled that the property should be returned to the seller, to complete any necessary works before attempting another sale, with the buyers being granted a lien over the property in the meantime to secure the sums they were owed.

Lessons in the wings

This case highlights the importance of making sure that clients are aware of the consequences of making false representations during the conveyancing process. It also provides comfort to any purchasers of property who think they may have been induced into entering a contract based on false promises or misleading information.

So when acting for clients who are selling property, take care when advising them on the process of replying to enquiries. Similarly, when acting for buyers, carefully scrutinise any replies that are received, and where information appears to be incomplete – or where the buyer has any specific concerns about a property – ensure that you make further enquiries.

Of course, each case will turn on its individual facts – particularly, the precise wording of the questions put to a seller and the responses they give. However, the court’s approach when considering the representations in the moth case offers helpful guidance on how to approach similar situations in the future:

The seller suggested that he did not consider moths to fall within the definition of “vermin”, which was the specific term used in the buyers’ enquiries. To ascertain the exact meaning of “vermin”, the court referred to various dictionary definitions and found that moths were likely to have been caught by the term. A commonsense reading of the word also suggests that a major moth infestation would probably be covered by “vermin” and the seller should, at least, have checked this response with his solicitor.
The court gave detailed consideration to whether the seller had obtained any “reports” about the fabric of the property. Again, the court gave this expression a fairly broad interpretation, noting that it could include relatively informal written information relating to the property’s condition, history and repairs, as well as more detailed formal documents such as professional assessments or technical reports.
The court considered whether the seller was right to state he was unaware of any “defects” in the property that would not have been visible to the buyers upon inspection. The seller attempted to argue that “defects” in this context meant only structural issues. This interpretation would have meant that the problem with the wool insulation – which led to the moth infestation – was not included. However, again, the court preferred the wider interpretation of the question, and held that the problematic insulation was a non-visible defect that the seller should have alerted the buyers to.

After the dust settles

With hindsight, it is easy to be critical of the seller, given his knowledge of the extent of the issues with the property, and to have sympathy for the buyers who faced such considerable disruption. But for solicitors, the moth case is a stark reminder that enquiries and replies are not just box-ticking exercises: they are a critical part of the conveyancing process and must be treated with utmost care and accuracy. Buyers need to feel confident in the advice they receive, while sellers must appreciate the risks of failing to disclose major issues when asked.

Attempting to answer a buyer’s specific questions in such a way that favours the seller’s position – and in doing so stretching the natural or most likely interpretation of the words used by the buyer – is rarely in a seller’s best interest. As the moth case illustrates, vague responses, narrow interpretations or omissions are likely to expose clients to serious legal and financial consequences.

This article was first published by the Law Society on 24 June 2025.

Landlord required to return £100,000s of insurance commissions

Tue, 24 Jun 2025 15:35:00 +0100

Under the lease in question, the tenant was obliged to pay "a proportionate part of the total sum… payable by the [landlord] by way of premium for keeping the Centre insured".

Typically, when buildings insurance is procured, a broker acts as an intermediary between the insurer and the landlord. Their role is to help the landlord obtain appropriate insurance cover and negotiate policy terms. If a policy of insurance is placed, the broker usually receives commission, and their commission becomes part of the insurance premium payable by the landlord.

In leases where the landlord is obliged to insure the building, and the tenant contributes to the cost of the insurance premium, the broker's commission would then be paid by the tenant.

However, in London Trocadero v Picturehouse Cinemas, the landlord had asked their insurers to add an extra layer of commission to the insurance premium, which was then paid straight back to the landlord (the landlord's commission).

The landlord's commission, like the broker's commission, was paid by the tenant via its contribution to the cost of the insurance premium. However, unlike the broker's commission, the Court held that, the landlord had not done anything to earn it, and it was not properly recoverable under the tenant's lease.

Accordingly, the landlord was ordered to repay c.£700,000 in respect of landlord's commissions that had been charged over an 8-year period.

Whilst the judgment does not establish any new law, it shines a spotlight on commercial practices which have, in many cases, been going on for decades.

Landlords and tenants should be keeping a close eye on how this particular area of law develops, but also bear in mind that each case will turn on its own facts and the wording of the particular lease in question.

We will provide further updates in due course, to ensure that you are fully informed.

Tribunal discharges 'obsolete' restrictive covenant affecting land despite strong opposition

Wed, 07 May 2025 16:30:00 +0100

Restrictive covenants are a mechanism by which the sellers of freehold property can seek to limit the ways in which the property being sold is used or developed in the future. Typically, they are imposed to preserve or maintain the character of a particular neighbourhood or area, or to secure some kind of collateral advantage for the party with the benefit of the covenant.

A landowner wishing to free themselves from the effect of a restrictive covenant may apply to have it discharged pursuant to Section 84(1) of the Law of Property Act. In order to do so, one of the following grounds must be made out:

The covenant is obsolete (s.84(1)(a));
The covenant impedes some reasonable use of the land (s.84(1)(aa));
The covenant has been discharged by agreement (s.84(1)(b));
No injury will be caused by the discharge (s.84(1)(c)).

In the recent case of Ball & Anor v Fulton [2025] UKUT 135 (LC), the Upper Tribunal (UT) was asked to discharge a restrictive covenant on the basis that the covenant in question was personal to the original covenantee and, because the covenantee had since disposed of her interest in the property, the covenant was now obsolete pursuant to s.84(1)(a).

What was the UT asked to decide?

To understand the issues before the UT, it is helpful to consider the wording of the specific covenant that was the subject of the discharge application:

"Not to erect on the land hereby conveyed any building other than a dwellinghouse which shall be a detached house of a general design and constructed of such types of materials and according to such plans and general specification as shall be submitted to and receive the reasonable approval of the Vendor such approval to be obtained before the building of any house on the land is commenced"

The party who was objecting to the discharge application argued that the term "Vendor" should include both the original covenantee and her successors in title. The reasons they presented to the UT included: the potential impact of development on the land benefitting from the restriction, the way in which the covenant fit with other obligations in the relevant conveyance, and a previous decision of the court (in a different case) that "Transferor" should be read to include successors in title.

However, the UT held that, notwithstanding the arguments put forward by the objector, most of the existing case law pointed towards the narrower reading of "Vendor", and that, upon a true reading of the conveyance in question, successors in title were not included. In particular, the UT put significant weight on the fact that, where successors in title were to be included, the conveyance expressly provided for this – and that the relevant building works would have been completed soon after the conveyance, such that obtaining approval from the Vendor was intended to be a discrete and contemporaneous event.

Comment

Ball & Anor v Fulton is a reminder that restrictive covenants can be successfully challenged, and that, when construing them, a careful and considered reading of both the covenant and the surrounding context is necessary.

If a landowner is thinking about applying for the discharge of a restrictive covenant, there are several issues they ought to consider, including: whether the covenant in question prohibits the proposed activity, who currently has the benefit of the covenant (if anyone), and whether any of the grounds for discharge are likely to apply.

In each case, a thorough analysis of the issues should be carried out, before proceeding with either an application to discharge or an objection. Doing so will likely save time and costs, whilst preserving any tactical advantages that might be available.

Whether you benefit from a restrictive covenant, or your property is burdened by one, if you would like advice in relation to your options, please do get in touch and we would be glad to assist.

Round-up of recent 1954 Act case law

Fri, 04 Apr 2025 16:44:00 +0100

On 19 November 2024, the Law Commission began consulting on its proposals for reform of the security of tenure provisions in the Landlord and Tenant Act 1954 (the 1954 Act).

The consultation period has now closed; and the market awaits the outcome with interest. Will the Law Commission recommend that security of tenure be abolished? Will they propose an "opt-in" system, rather than the current "opt-out-if-you-like"? Or will they endorse what we currently have, but suggest "reasonable modernisation"?

In the meantime, the Courts continue to hear 1954 Act cases, and a number of new decisions have been handed down in recent months. The termination of protected leases seems to be an emerging theme this year, and the following cases set out key points for both landlords and tenants to consider.

Spirit Pub Company (Managed) Limited v Pridewell Properties (London) Limited [2025] Claim No: K02ED953

The tenant of this public house had been in situ since 2007. The landlord sought to terminate their tenancy on the basis that they planned to redevelop the property.

However, whilst the landlord was able to prove that they had a genuine intention to redevelop, they could not demonstrate that they had the funding necessary to carry out the proposed works. Accordingly, the landlord's claim failed, and the Court held that the tenant was entitled to a renewal lease.

This case is a sharp reminder that, to terminate a tenant's 1954 Act rights, landlords need clear evidence of both their intention to carry out any proposed redevelopment and ability to see their plans through to completion. Typically, this means demonstrating that there is a real prospect of obtaining planning permission, together with any other consents needed, and that suitable funding is available.

MVL Properties (2017) Ltd v The Leadmill Ltd [2025] EWHC 349

This case concerned a popular live music venue in Sheffield. The tenant applied to the Court for a renewal lease. The landlord opposed the tenant's claim on the basis that it intended to occupy the property and operate its own business from it.

The tenant ran a novel argument at trial which was that Article 1 (the right to private property) of the European Convention on Human Rights would be breached, if the tenancy was terminated, as the landlord would indirectly acquire the goodwill of the tenant’s business without paying adequate compensation.

However, the tenant was unsuccessful, and the Court held that, even if the tenant could evidence a quantifiable loss of goodwill, any deprivation that did occur was in accordance with statute and in the public interest.

Each case will turn on its own facts. However, in light of the judgment in this case, it is difficult to foresee a scenario where breach of Article 1 could be used successfully to defeat a landlord's opposition to granting a renewal.

SBP 2 S.À.R.L v 2 Southbank Tenant Limited [2025] EWHC 16 (Ch)

The mechanisms in the 1954 Act are not the only way security of tenure can be terminated, and this case related to a landlord's attempt to bring a protected lease to an end via forfeiture.

The lease contained a clause which, amongst other things, allowed the landlord to terminate if the tenant was "unable to or deemed unable to pay its debts within the meaning of sections 122 or 123 of the Insolvency Act 1986".

The tenant contended that the clause in question only gave rise to a right to terminate once a court had determined that it was insolvent. The landlord disputed this and argued that such an interpretation was impractical and did not reflect the commercial position between the parties.

Following a two-day summary judgment hearing, the Court ruled in favour of the tenant. In particular, it found that the clause in question provided a "certain, clear and workable" forfeiture mechanism, and that the landlord's argument that it would be too "cumbersome and expensive" to follow the process set out in the lease was not persuasive.

Comment

These cases all demonstrate the importance of taking legal advice at an early stage, if the termination of a lease is contemplated by either landlord or tenant. There are usually multiple factors that determine the success, or failure, of an attempt to terminate, and it is vital that a clear and viable strategy is adopted from the outset.

Whether you are a landlord who is thinking about terminating a tenancy, or a tenant who would like to preserve their right to occupy, do get in touch and we would be glad to assist.

Register of Overseas Entities – one month since the deadline and thousands still face penalties from failure to register

Mon, 06 Mar 2023 12:00:00 Z

Requirements of the Act

The Act requires companies or other legal entities which are governed by the law of a country or territory outside the UK who own or will acquire a "qualifying estate" (being a freehold estate in land or a leasehold estate in land for a term of more than seven years), to provide details of their beneficial owners and/or managing officers.

The Act applies to an overseas entity if it owns land purchased on or after:

1 January 1999 in England and Wales;
8 December 2014 in Scotland; and
1 August 2022 in Northern Ireland.

In England and Wales, overseas entities who have owned a qualifying estate since 1 January 1999 had until 31 January 2023 to provide the relevant information to Companies House and register on the register of overseas entities. While that deadline has passed, any overseas entities that did not register on the register of overseas entities by 31 January 2023 will still be able to register. However, they will be in breach of the Act until they do so.

Furthermore, overseas entities are required to give details of any dispositions of land which occurred after 28 February 2022, including transfers, grants of leases for a term greater than seven years and grants of charges.

For a more detailed explanation of the requirements under the Act, please refer to our previous article on this topic here.

Consequences of Failure to Comply

Failing to comply with the requirements under the Act can result in a fine of up to £2,500 for each day of non-compliance and a prison sentence of up to five years. There are also restrictions placed on the entity's ability to buy, sell, transfer, lease and charge their land. For example, since 5 September 2022 it is not possible to register title with the Land Registry without an Overseas Entity ID.

Potential to apply the Proceeds of Crime Act 2002

Furthermore, it has been indicated by the Law Society that completion monies transferred to a non-compliant landlord may constitute proceeds of crime under the Proceeds of Crime Act 2002. This aligns with the intention behind the Act for greater transparency around land ownership in the UK and to make it harder for UK land to be used to hide the proceeds of crime. While this is yet to be tested, a further possible consequence of failure to comply with the Act to be considered is whether rent and other monies paid pursuant to a lease following the deadline for registration could be considered proceeds of crime if the landlord has failed to register on the register of overseas entities.

The position on this point is currently unclear but analogies can perhaps be drawn with criminal breaches by landlords of legislation relating to houses in multiple occupation ("HMOs"), which has an established body of case law. In the area of HMOs, it has previously been decided that the rent received by landlords where an HMO licence is not in place, is not considered to be the proceeds of crime. The failure to obtain a licence is considered a regulatory offence, rather than a criminal offence. The rent is obtained pursuant to the lease which itself remains a valid and enforceable contract, even though the licence has not been obtained. This approach was taken by the Court of Appeal in R v Sumal & Sons (Properties) Limited [2012] EWCA Crim 1840, [2013] 1 WLR 2078.

This same approach has been subsequently followed in later cases, such as R v McDowell and Singh ([2015] All ER (D) 257 (Feb) which also related to a failure to obtain a licence and R v Neuberg [2016] All ER (D) 92 (Dec) which related to an offence of trading under a prohibited name. On appeal, the latter case outlined that it was necessary to conduct an analysis of the terms of the statute that created the offence and to identify the criminal conduct and whether the proceeds were obtained through that criminal conduct.

If we follow established case law applicable to HMOs and subsequent cases as guidance, it could be argued that rent and other monies received under a lease by a landlord who does not comply with its obligations under the Act should not be considered proceeds of crime because there is still a valid, enforceable contract in place (i.e. the lease) and the landlord is not unlawfully obtaining rent as a result of its failure to register on the register of overseas entities.

However, the introduction of a fine or imprisonment for failure to comply with the Act suggests that the government intends to take a tougher approach - where failure to register is to be treated as a criminal offence rather than a regulatory offence. In support of this view, the Act broadens the unexplained wealth order regime under the Proceeds of Crime Act 2002 both by extending the scope of who may be a recipient of an unexplained wealth order to include a "responsible officer" (i.e. a director, member of a body, partner, manager, secretary or similar officer of the respondent) and by adding a further ground for making an unexplained wealth order (i.e., that there are reasonable grounds for suspecting that the property has been obtained through unlawful conduct).

Given the government's purpose for the Act and the clear amendments to the Proceeds of Crime Act 2002, we don't expect the approach taken for any breaches of the Act will be light touch, particularly where there are reasonable grounds for suspecting that the property is being used to launder money. Certainly, many companies classed as overseas entities will be following these developments closely and will be eager to see the approach taken to the first offence under the Act.

Take-Aways and Future Considerations

This area of law remains undeveloped, and in the meantime, landlords should ensure that they attend to registration as soon as possible to avoid any restrictions on dealing with their land, delays on transactions completing and any possible fine or other penalty for non-compliance.

Tenants who are negotiating leases with landlords who are overseas entities should be checking if the landlord complied with these registration requirements. This can be checked by carrying out an advanced company search on Companies House and selecting "overseas entity" as the company type. If the landlord has not completed registration, we would recommend seeking advice on the best course of action.

Cladding and Valuation: Important RICS guidance under consultation until 31 October 2022 – have your say!

Thu, 20 Oct 2022 14:24:00 +0100

The Consultation responds to recent, extensive legislation which has included the protections created for qualifying leaseholders; the Government Fund for remediation works; new legislation on remediation orders; and other provisions of the Building Safety Act 2022.

The RICS guidance aims to provide consistency and transparency in the valuation approach, supporting the valuer in their assessment of value and the appropriate use of assumptions and special assumptions. This document is intended to help valuers undertaking valuations for secured lending purposes on domestic residential flats, within residential blocks of 5 or more storeys or 11 metres or more in height.

The proposed guidance sets out the anticipated common scenarios valuers are likely to experience in the near term, with valuers expected to apply the principles set out in the document alongside their professional judgement.

The proposal comes after significant engagement with many key stakeholders such as valuers, insurers and lenders. However, RICS is seeking further engagement regarding views and evidence as to whether the proposal will provide the clarity and consistency in valuation approach it seeks to achieve. It is seeking feedback from a wide range of stakeholders including prospective buyers, as well as relevant professionals and industry bodies in order to inform the final guidance. Be sure to have your say.

Once the consultation has been completed, RICS aims to have the guidance published this year.

The consultation closes at 11.59 pm on 31 October 2022.

You can access the consultation here.

Authors Alex Anderson, Kat Cusack & Faye Cottrell-Hopton

Register of Overseas Entities – Register now to keep transactions running smoothly

Wed, 07 Sep 2022 11:01:00 +0100

Companies and other legal entities governed by the law of a country or territory outside of the UK which own land in the UK satisfying certain requirements, or wish to own such land, must now register information with Companies House. A new Register of Overseas Entities ("the ROE") has been created and certain details of the registered overseas entities and their beneficial owners are available to the public.

An overseas entity is within the scope of the ROE if it owns land purchased:

a) in England and Wales on or after 1 January 1999;

b) in Scotland on or after 8 December 2014; and

c) in Northern Ireland on or after 1 August 2022.

This blog focuses on the law as it applies in England and Wales but, similar regimes apply in Scotland and Northern Ireland.

In England and Wales the Act applies to overseas entities which own or will acquire "qualifying estates". Such estates are freehold estates in land or leasehold estates in land originally granted for a term of more than seven years at the date of grant.

Overseas entities that have owned a qualifying estate from 1 January 1999 have until 31 January 2023 to register with Companies House.

When registering, an overseas entity will need to disclose details about their beneficial owner(s) (if any) and/or managing officer(s) to Companies House. Such information will then be published on the ROE and the relevant entity must update the information annually and no later than 14 days after the anniversary of the date that the overseas entity was registered.

New Purchasers

From 1 August 2022, new purchasers of qualifying estates must register with Companies House and obtain an Overseas Entity ID number. From 5 September 2022 it will not be possible to register title with the Land Registry without an Overseas Entity ID.

Dispositions of Qualifying Estates after 28 February 2022

If an overseas entity makes an application for registration on or before 31 January 2023, it must also confirm whether or not it has made a "relevant disposition" of a qualifying estate since 28 February 2022. Relevant dispositions broadly include:-

a) transfers;

b) grants of leases for a term of more than 7 years at the date of grant; and

c) legal charges.

If a relevant disposition has been made since 28 February 2022 then additional information about the disposition must be included.

Any overseas entity that has made a relevant disposition since 28 February 2022 must make a statement to Companies House about the disposition and include information about the land in question, even if that overseas entity is not required to register with Companies House as it no longer owns a qualifying estate.

So, by way of example, assume an overseas entity was registered as a freehold proprietor of land in England in March 1999. If the overseas entity did not own any other qualifying estates and disposed of the land in March 2022, the overseas entity would not be required to register with Companies House. However, the entity would be required to provide Companies House with a statement about the disposition, including information about the land in question.

The Registration Process

The determination of beneficial owners is based on the regime of People with Significant Control already in place for UK incorporated companies. Whilst detailed guidance about the registration process and how to identify beneficial owners or those with significant influence or control has been published by BEIS, detailed consideration of the Act and its accompanying regulations is critical in order to ensure that the process is followed correctly.

Once the overseas entity has gathered the required information, the information needs to be verified by an appropriate professional prior to submission. In-house solicitors are not able to conduct verification on behalf of the overseas entity which employs them. The application can made online for a fee of £100 and Companies House is required to respond within 7 days.

Once the required information has been provided and verified, the overseas entity will be registered by Companies House and an Overseas Entity ID will be provided. This ID must be provided to the Land Registry whenever the overseas entity buys, leases, transfers or registers charges involving a qualifying estate. Even where an ID number is provided to the Land Registry, applications will not be processed if the overseas entity is not compliant at the time of any application, for example, because it has failed to provide an annual update to Companies House.

Consequences of Failure to Register

If an overseas entity which is required to register fails to do so before 1 February 2023, the entity and every officer of the entity commits a criminal offence. Failure to keep the register up to date and provide an annual update to Companies House is also a criminal offence. There is a daily default fine of £2,500. A person found guilty of an offence may also be liable to a fine, imprisonment or both.

The overseas entity will also be unable to register any dispositions of qualifying estates with the Land Registry.

What Steps Should Be Taken Now?

1. Property Portfolio Review

Any overseas entity owning or leasing real estate in the UK should immediately review its portfolio to identify whether or not any of its property is a qualifying estate.

2. Identify Beneficial Owners

Before an application to be registered on the ROE can be made, reasonable steps must be taken by the relevant entity to identify its beneficial owners and obtain information about those beneficial owners. Entities are able to serve information notices on persons they have reasonable cause to believe are their registerable beneficial owners. Any person served has a month to respond to the notice. These potential delays need to be factored in when gathering information to ensure that any applications for registration can be made in good time.

3. Verify information

The information accompanying any application for registration must be verified prior to the application being made. Verification can only be carried out by appropriate professionals. The process can take a significant amount of time where dealing with a complex entity and sufficient time must be allowed.

4. Look back at transactions since 28 February 2022

As stated above, an overseas entity will also need to provide information about disposals of qualifying estates since 28 February 2022 irrespective of whether they need to register on the ROE.

5. Register now

Once the relevant information has been gathered and verified, make any applications to register as soon as possible to avoid the expected bottle necks at Companies House and to ensure future transactions can proceed smoothly. Ensure the requirement to provide an annual update is appropriately diarised.

Business Rates – an unpopular tax imposed in unfortunate circumstances

Mon, 06 Dec 2021 15:02:00 Z

Business rates are calculated by multiplying the rental value of the relevant property by the Uniform Business Rate (UBR), currently 51.2 as standard but 49.9 for small businesses, which is currently revalued every 5 years. It is the occupier's responsibility to pay business rates and this responsibility passes to the owner if the property is empty. Limited exemptions are available in certain circumstances and reliefs are available to a few entities. If the property is unoccupied then empty rates relief is available for the first 3 months but this is often of no practical benefit to retailers who lease their premises as often the value of any empty rates relief claimed will be passed to the landlord at the end of the term of the lease.

Business rates have a long history in the UK, with local versions imposed by the Poor Relief Act 1601. Locally-acting legislation was consolidated by the General Rate Act 1967 before it was replaced in its entirety by the Local Government Finance Act 1988 and later supplemented by further legislation such as the Non-Domestic (Unoccupied Properties) (England) Regulations 2008. The 1988 legislation meant that the UBR is set by central Government rather than locally and the central Valuation Office is responsible for administering business rates with the local billing authority only responsible for collection and enforcement. An effect of this centralisation is that appealing any business rates decision can be complicated and protracted with appeals having to go to the Valuation Office Agency.

Another major complaint is that the system is cumbersome and does not reflect economic movement. Although the UBR is revalued periodically, these revaluations can be delayed, with the result that the values used for the calculation may differ wildly from the actual value of the properties. A delay in the 2015 revaluation meant that 2010 data was used to calculate some 2017 business rates. Other jurisdictions such as Hong Kong and the Netherlands revalue business rates every year using an arguably fairer and certainly more flexible digitalised system. The use of digital records also makes the system more transparent and therefore easier to challenge; a welcome move for retailers.

We must also consider the effect of online-only retailers. The boom in online shopping means that traditional retailers are doubly disadvantaged by the consequent loss of trade and having to pay a tax for which there is no online-only equivalent. This is due in some part to the challenges in implementing such a tax; whilst property is easy to identify and quantify, the benefit of online sales is less so. The Spring 2020 Digital Sale Tax did introduce some measures but it only collected 2% of online revenues made in the UK. It is also due to be phased out and replaced with a globally agreed system. While this may assist in the long-term, it seems unlikely that this will bring relief in the immediate future.

Whilst recent developments such as the freezing of the Uniform Business Rate for another year and the decision that revaluation will take place every three years rather than every five have been broadly welcomed, many think that they are not enough. Although a 50% discount can be claimed, this discount is capped at £110,000 which means that it is of little to no use to all except the smallest retailers with the fewest premises. A consultation on these developments has been announced and closes in February 2022 but this is on the technical aspects of the announcements, not the general principle of business rate reform. The fact remains that business rates are a valuable source of income which the government is reluctant to relinquish.

In the meantime, retailers are still struggling and many of them blame business rates. Frasers Group, who have announced the closure of its House of Fraser flagship store on London's Oxford Street (actually due to the landlord wanting the property back, but it is not relocating), call the business rates system "archaic" and "astonishingly outdated", going further to say that "without [a review of business rates] further store closures are inevitable".

What about the arrears?

Fri, 20 Aug 2021 16:22:08 +0100

Unsurprisingly perhaps the two most favoured options in the responses to the call to evidence were:-

(a) for all tenant protection measures to lapse on 30 June 2021 (89.5% of responding landlords were in favour of this option); and

(b) the introduction of a scheme of binding arbitration to resolve rent debt (66.3% of responding tenants were in favour of this option).

From the responses it appeared that the voluntary nature of the existing Code of Practice was making it too easy for parties to simply ignore it and refuse to co-operate. The policy statement confirms the Government's commitment to introducing a stronger Code of Practice and a binding arbitration process where negotiations fail.

The policy statement made on 4 August is light on detail but the Government confirmed that legislation to ringfence debt accrued by commercial tenants who have been affected by COVID 19-related business closures and introducing a binding arbitration for dealing with such debt will be introduced in the current parliamentary session (so by spring 2022). The ring-fenced debt will be for the period from March 2020 until restrictions for their relevant sector were removed.

The policy statement makes the following key points:-

The moratorium on forfeiture will continue until 25 March 2022 unless further legislation is passed in the meantime. This therefore introduces the possibility that such date could be brought forward or pushed back depending on how matters progress.
Tenants who have not been affected should continue to pay.
Tenants who have been affected should be paying in full from when restrictions were lifted. Tenants should specifically apportion rent payments and make it clear to their landlords what period any payments relate to.
When the legislation comes in, landlords will be able to forfeit for non-payment of rent that fell due prior to March 2020 or for a period after any relevant restrictions on opening were lifted.
A more stringent and mandatory Code of Practice will be introduced setting out the principles the Government expect parties to adopt when negotiating. The new Code of Practice and the principles will be published prior to the arbitration scheme becoming effective in order that parties have time to negotiate.
Landlords and tenants acting in good faith and in accordance with the principles in the Code of Practice will be expected to share the costs of any arbitration. Arbitrators may be empowered to order a party to pay all of the costs of the arbitration if they do not act in good faith or otherwise in accordance with the principles in the Code.

What is clear from the policy statement is that the Government wants the parties to negotiate and sees the arbitration process as a matter of last resort. Clearly the Government are hoping that by publishing the revised Code of Practice and the principles prior to introducing the binding arbitration, the vast majority of rent arrears will be dealt with without the need of an arbitrator. If all of a tenant's revenue was generated from shop-based sales and its shop was legally required to close due to COVID 19 with the tenant receiving no revenue until the shop is permitted to open then it seems that a landlord may well be expected to waive at least some of the rent for this period. Quite how considerations about on-line sales or fluctuations in sales throughout the different periods will be factored in remains to be seen.

The Forfeiture Moratorium has been extended – But what about the arrears?

Mon, 26 Jul 2021 12:04:00 +0100

Specific reference was made to nightclubs and hospitality which have been particularly badly hit but this could also extend to other sectors such as retail. The Government stated that it expects landlords to make allowances for the rent arrears relating to these periods of closure and to share the financial impact with their tenants.

The Government stated landlords and tenants will be encouraged to reach a mutually beneficial agreement concerning arrears relating to the relevant period. Specifically it suggested such agreements could involve waiver of some of the arrears or agreed payment plans.

Where landlords and tenants cannot agree there will be a binding arbitration process delivered by private arbitrators in accordance with guidelines to be set out in the legislation. Arbitrators will need to undergo an approval process to prove their impartiality.

This latest Government initiative follows evidence gathering from a broad range of stakeholders concerned with commercial tenancies. The Government response to the call for evidence will be published later this year.

The Proposed Arbitration

No details have yet been provided about:-

the proposed arbitration process;
the training and guidance to be given to the arbitrators;
the precise remedies or powers arbitrators will be given.

However the Government will be keen to avoid Court proceedings challenging arbitrators' decisions so parties can expect the arbitrator's decision to be final in most cases.

This makes it very difficult for landlords, tenants and their professional advisers, to know the full extent to which the coming legislation is likely to impact upon them.

Whilst legislation to date has suspended various landlord remedies, including forfeiture, the coming legislation is expected to go further with arbitrators having the power to vary the lease obligations between landlords and tenants . Potentially this could be very useful for tenants struggling with intractable landlords and opens up the possibility of a real sharing of the burden of the consequences of the pandemic for the first time.

However there are many practical details that will need to be resolved. The length and cost of any arbitration will impact on its effectiveness. Neither a tenant struggling financially nor a landlord who has arrears of rent to manage are likely to welcome incurring additional costs. There may also be issues with finding enough arbitrators to deal with the demand. The Government has stated that arbitrators will need to be accredited and show they are unbiased but how they will do this is unclear.

There is concern in some quarters about how an arbitration might be ham-strung by arrangements with third parties, such as a mortgagee or a superior landlord. For example, would a landlord be able to avoid an arbitration if there are covenants in its own lease or loan documents preventing it from agreeing concessions with its tenants? In addition, there are likely to be many cases where there are arrears relating to both the period covered by the jurisdiction of an arbitrator and arrears relating to a period outside of the arbitrator's jurisdiction. In such circumstances it is likely to make much more commercial sense for parties to agree a settlement in the round rather than entering into separate court and arbitration proceedings.

With all of the above issues in mind landlords and tenants will be keeping a close eye on developments in the drafting of the legislation.

The risks of going large (again)

Thu, 21 Jan 2021 10:57:32 Z

The appeal of that case came before the Court of Appeal in December 2020, who decided to dismiss the appeal and uphold the High Court's judgment. Whilst this decision signifies a potential willingness by the Courts to depart from the usual measure of loss, the Court of Appeal stressed that this was an unusual case and that the findings should not give rise to a departure from the usual principles governing the measure of loss in claims against surveyors.

The High Court Case

The High Court case arose from a dispute between purchasers Mr and Mrs Hart and an experienced surveyor, Mr Large, whom they engaged to provide a RICS Homebuyer Report in relation to a newly refurbished property situated on a hill-top in Devon. The report highlighted only minor issues with drainage problems and concerns with some gutters and pipes. Mr Large valued the property at £1.2m and Mr and Mrs Hart purchased it for that price.

Following the purchase, the property suffered serious water ingress and damp issues. The Harts brought a negligence claim against Mr Large. They also sued the conveyancing solicitors and the architects who had supervised the reconstruction works on behalf of the previous owners. The High Court found Mr Large was negligent in that he:

Failed to report that he could not see any damp-proofing where he should have expected to see it and wrongly assumed, without evidence, it was present; and
Failed to recommend in his report that a Professional Consultant's Certificate (PCC) should be sought.

In its assessment of damages, the High Court diverged from the normal rule, established in the Watts v Morrow case, that damages should be assessed on the basis of the difference between the value of the property as described in Mr Large's report and its value in its actual condition. Instead, the judge awarded damages based on the costs of the remedial works required to remedy all the defects that would have been identified had Mr Large properly advised the claimants – in effect, the costs of remedying all defects with the property, including not only those he had identified in the report but also those he could not have been expected to identify . The judge awarded the Harts £750,000, which was reduced to £374,000 to take into account the out-of-court settlements with the architects and the solicitors. The award included £15,000 for inconvenience and distress which is a high sum for that type of loss.

The Appeal

The appeal was limited to the measure of damages applied by the High Court. Mr Large argued that the correct basis of the measurement of damages was the diminution of value. He argued that the principle in Watts v Morrow was such that, unless the surveyor provides a warranty as to the condition of the property, there is no basis for awarding damages to reflect the costs of repair.

Mr Large also argued that, were the decision to be upheld, this would radically alter the usual approach that Courts take in claims against surveyors.

Decision

The Court of Appeal highlighted "four critical findings" in the High Court's decision from which Mr Large could not escape:

He was negligent in the advice he gave about damp and damp-proofing;
He was negligent in failing to advise the Harts not proceed with the purchase without a PCC;
Had Mr Large given the appropriate advice, the Harts would not have proceeded with the transaction; and
Mr Large's negligence had deprived the Harts of "advice which was so fundamental to whether the transaction could go ahead that Mr Large should be held to bear the consequences of such advice not having been given."

On this basis, the Court of Appeal upheld the High Court's decision. Coulson LJ held that the measure of loss used by the High Court in this case was appropriate. He held that, whilst Mr Large could not have been expected to identify all of the damp-proofing defects, he should have seen enough to "give rise to a trail of suspicion which (taken together with the need for a PCC which would have covered all aspects of the rebuilding works in any event) ought in turn to have led him to give very different advice."

The Court placed great emphasis on Mr Large's failure to advise the Harts to obtain a copy of the PCC. Coulson LJ agreed with the judge at first instance that Mr Large should have advised that, without a PCC, the Harts should not continue with the purchase. The advice was so fundamental that Mr Large must bear the consequences of failing to give that advice. The fact he was held liable for some latent defects unconnected with damp-proofing which he could not have been expected to find was a direct consequence of his failure to advise that a PCC was necessary before the Harts purchased the property.

Mr Large's legal team sought also to rely on the principles in SAAMCO and Hughes-Holland. They argued that Mr Large was not an "advisor" in the sense of these authorities and that a surveyor in a house purchase could never be considered to be the advisor. Further, they argued that the "advice"/"information" categories were binary and there could never be any sort of hybrid situation. Coulson LJ firmly rejected these arguments and found that the "advice"/"information" categories are not rigid and could overlap. Further, he reasserted the factual findings of the High Court which concluded that this was not a mere "information" case. He concluded that, while this could be considered a hybrid case, it was in fact much closer to an advice case.

Coulson LJ agreed with the High Court's decision that any other measurement of loss would have been very low and would not have compensated the Harts for the losses for which Mr Large was responsible. The conventional method for assessing damages would have only compensated the Harts for the simple defects that Mr Large should have reported but missed.

Comment

Whilst this decision case poses some risk to surveyors, the Court of Appeal strongly emphasised the unusual facts of the case. Coulson LJ stated that the ruling was specific to this claim and did not represent a departure from the principles governing the measure of loss in negligent surveyor cases. Watts v Morrow is therefore very much still alive and well and will govern the way in which damages should be assessed in the vast majority of cases.

Surveyors should continue to keep their advice under review and ensure that anything that has not been inspected is noted on the report, with reasons why. Any surveyors asked to inspect a property that has recently be renovated should also give careful consideration to whether the client needs a PCC.

CLC issue new Guidance on dispute resolution in the construction industry

Fri, 07 Aug 2020 11:00:20 +0100

The CLC Guidance

On 7 May 2020 the CLC published its COVID-19 Contractual Best Practice Guidance. The CLC guidance places a significant emphasis on collaborative engagement to resolve issues as and when they arise, noting that a lack of proper, fair and reasonable administration of construction contracts in the COVID-19 landscape may have a significant and detrimental effect on an industry which is expected to play a central role in the recovery of the economy.

The CLC guidance complements and is largely an extension of the Cabinet Office's guidance note on responsible contractual behaviour in the performance and enforcement of contracts impacted by COVID-19. Key points from the CLC guidance include:

1. Collaboration: The CLC guidance encourages a collaborative approach between parties to work towards the successful delivery of projects. To assist parties, the CLC provides pro-forma letters to facilitate collaborative discussions. These letters are marked 'Without Prejudice and Subject to Contract' and the CLC encourages the use of this term to avoid potential misunderstandings. Helpfully, the CLC provides a brief explanation of these terms and their practical operation to assist those who may not be familiar.

2. ADR: ADR is a key mechanism for resolving disputes in the field of construction. The CLC guidance encourages the use of ADR to resolve disputes in an economic and pragmatic way, highlighting the lengthy and costly nature of litigation as a mechanism for resolving disputes. Useful information is provided on without prejudice meetings, mediation and adjudication as alternative routes to resolving disputes in a collaborative and cost-effective manner.

3. Termination Triggers: Parties are encouraged by the CLC to waive any relevant termination triggers in contracts, such as those which arise by way of delay or prevention.

The overarching takeaway from the CLC guidance is that parties work together to resolve disputes amicably, swiftly and at minimal cost and disruption.

To help facilitate the collaborative approach advocated above, the CLC released further guidance on 14 July 2020 providing suggested contractual amendments for construction companies to utilise during the pandemic.

Wider Effect of CLC Guidance

The principle of collaboration promoted by the CLC is eminently sensible. During the unprecedented economic fallout caused by COVID-19 it is more important than ever to avoid expensive and time-consuming litigation as a method of dispute resolution.

The cost-saving message at the heart of the CLC guidance also brings to fore the need for construction companies to be pro-active in identifying potential claims and pursuing them economically. Recovery actions for claims arising from breaches of statutory, common law and contractual duties represent an important way for construction companies to claim damages for unnecessary and potentially faultless losses. By embracing the collaborative and pragmatic ethos promoted by the CLC such action can hopefully be completed swiftly and at minimal cost, providing greater security to the cash-flow of construction companies.

RPC have market leading expertise in the fields of construction and recoveries, and are well placed to help identify, pursue and settle potential recovery actions as pragmatically and economically as possible. See our Construction and Recoveries pages for further information on how to get in touch and discuss how we can assist.

Hart v Large: Important guidance for surveyors when advising prospective purchasers

Thu, 02 Jul 2020 10:23:02 +0100

The dispute arose out of a RICS Homebuyer inspection and report, which was undertaken in November 2011, by an experienced surveyor, Mr Large. The subject property was located on a hill-top in Devon and had been newly reconstructed. Mr Large recommended to the Claimants that he should prepare a Homebuyer Report i.e. a 'level 2' survey category, and the Claimants agreed. Mr Large valued the property at £1.2m and his report highlighted drainage problems and concerns with the pipes/gutters. After receiving Mr Large's report, the Claimants purchased the house for £1.2m.

Following the purchase of the property, it became evident that there were serious issues with water ingress and damp, that ultimately required extensive remedial works. Mr Large made no reference to these issues in his report.

The Claimants brought claims in negligence against the architects (instructed by the previous owners) who had supervised the reconstruction works, the Claimants' conveyancing solicitors and Mr Large. The claims against both the architect and the solicitors settled prior to trial.

Claim against the Surveyor

The Claimants alleged that Mr Large was negligent by:

recommending a HomeBuyer report instead of a full Building Survey;
failing to identify the significant damp problems at the property following his inspection; and
failing to recommend, in his report, that a Professional Consultant's certificate should be sought.

The Decision

In relation to the first allegation, the Court agreed Mr Large should have advised that a Building Survey should be carried out and stated that a surveyor has a "continuing obligation, having advised that a HomeBuyers Report is appropriate, to keep that advice under review (a) in the time between being asked to carry out a survey and reporting following that survey; and (b) as appropriate (a very important qualification) when advising after reporting on the initial survey…".

However, the Judge found that different surveyors' opinions could legitimately differ and, accordingly, applying the Bolam test, this allegation of negligence failed on the evidence.

With regards to the second allegation, Mr Large was found to be negligent for failing to identify and report the damp / water ingress in the property. The Judge found that "given the difficulties which faced Mr Large in reporting upon a newly redeveloped house, he should have been alert to some of the signs of sloppy workmanship which were there to be seen and to which he should have drawn attention, or given greater emphasis…".

The Judge found there was no evidence of damp at the time of Mr Large's inspection; however, Mr Large had noted in his inspection that, because the walls of the property had been rendered, he could not see whether or not damp proof membranes had been installed. The Judge concluded that Mr Large should have reported that he could not see visible damp proofing at any location and that further investigations were required.

Lastly, the Judge found against Mr Large for failing to recommend the need for a Professional Consultant's Certificate from the architect, prior to purchase of the property. Given that this was a newly constructed property, it did not have the benefit of an NHBC warranty. The Judge compared the importance of the Professional Consultant's Certificate to a Completion Certificate from Building Control.

The Judge concluded that, had the Claimants known of the issues of damp / water ingress prior to the purchase of the property, they would not have proceeded with the purchase. Likewise, the Judge found that, had the architects been asked to provide a professional consultant’s certificate, in the circumstances they would have declined to provide one, and the Claimants would not have proceeded with the purchase.

Assessment of damages

It was argued, on behalf of Mr Large, that damages should be assessed by first identifying any defects in the property which should have been reported on and then assessing the extent to which any such defects would have reduced the value of the property below the sum of advised of £1.2million (Watts v Morrow (1991)).

The Judge did not accept that the Watts v Morrow approach was appropriate in this case on the basis that adopting that approach would have led to a very low award of damages.The Judge concluded that this level of award would far from put the Claimants into the position they should have been in if there had been no breach of duty. The Judge considered that, as was emphasised by Lord Hoffmann in South Australia Asset Management Corp v York Montague Ltd at page 211A, the starting point is to consider the cause of action against the Defendant i.e. Mr Large. In this case the main breaches of duty by Mr Large related to failing to recommend that the Claimants should have obtained a professional consultant’s certificate. The purpose of obtaining such a certificate was precisely to obtain some form of protection against the presence of defects, which a competent surveyor could not identify in a newly rebuilt house. The Judge concluded that the Defendant's failure amounted to the 'negligent provision of advice', to bring the claim within the ambit of cases in which surveyors can be held responsible for all losses caused by the inadequacy of that advice, rather than the 'negligent provision of information', where the entitlement to damages is limited by the test in the SAAMCo case.

The Judge therefore awarded the Claimants £750,000, being the difference between the value of the property as it had been reported to them in the HomeBuyer report and its value with all of the defects which actually existed. The Judge then reduced the award to £374,000 to take into the out of court settlement with the architect and the Claimants' conveyancing solicitors.

The Court also awarded £15,000 for inconvenience and distress - an unusually high recovery for that head of loss.

Points to note for Surveyors:

Continue to keep your advice under review and consider the type of property and RICS guidance when recommending a survey;
Be mindful of your duty to recommend a full Building Survey where necessary (and record that you have done so);
Ensure you report anything that has not been inspected with an explanation as to why. This is particularly important at the moment, when surveyors are being required to undertake inspections that may be limited due to the restrictions in place due to the COVID-19 pandemic;
Consider the appropriateness of recommending a professional consultant’s certificate which could ultimately protect both the surveyor and the purchaser.

The curse of COVID strikes again – implementation of the Home Survey Standard delayed

Fri, 12 Jun 2020 11:01:05 +0100

The aim of the Home Standard Survey

The Home Survey Standard is the result of an industry and consumer consultation launched by the RICS in April 2019. By carrying out an extensive review of existing guidance, the consultation found that there was a need for a set of mandatory requirements for RICS members and regulated firms in the UK who deliver any level of residential property survey.

The consultation found that both stakeholders and consumers saw a need for a consistent approach across the residential industry. The idea behind the creation of a set of mandatory requirements for all RICS members is that this should guarantee consistency and serve the changing needs of the market. The aim is to help improve the home buying and selling process, which can be complicated by the different products available.

The new Home Survey Standard

The Home Survey Standard was launched in November 2019 (RPC was involved in the drafting of the new Standard). It will be the sole standard for home surveys for RICS members and firms, replacing all previous guidance notes and statements for all levels of condition surveys in a complete over overhaul.

RICS hopes that this new simplified approach will help consumers "fully understand the importance and benefits of commissioning a home survey before purchasing a property".

The new Standard will improve communication between a homebuyer and their surveyor by including benchmarks that embrace new technologies and media. This will hopefully make it easier for everyday homebuyers to understand the results of their survey. Whilst it will put more responsibility on surveyors to be clearer about their observations and recommendations, it also will help develop increased trust between homebuyers and the profession. The industry hopes that more confidence in the surveys carried out as part of the conveyancing process will see a decrease in the number of renegotiations of the purchase price post survey, as well as fewer aborted transactions. A survey that is clearly set out and does not include any ambiguity can help guarantee the success of a deal.

How does this work in practice?

Prospective purchasers are given the choice between a Level 1, Level 2 or Level 3 survey, within which the services offered are standardised, and the language simplified. This is based on the previous system, which was set out as a three-tier system approach.

Given the similarity between the two systems, during the consultation members highlighted that the process and its implementation needed to be 'minimal'. This is also with a view to protect less sophisticated buyers and sellers who may be find themselves navigating the system for the first time.

The new Standard will be introduced in a market in which lenders are trying to cut costs and increasingly relying on automated valuations based on statistical trends – a situation exacerbated by the restrictions on inspection imposed to address the COVID-19. So often in these transactions, no surveyor enters the building to inspect the actual condition of the property. The new RICS Home Survey Standard will improve the accessibility and quality of information that homebuyers receive when they commission a survey.

The previous deadline of June 2020 means that some firms will already have implemented the Home Survey Standard. However, this extension provides some additional time to implement this change whilst managing the wider business implications of also responding to COVID-19.

RICS have also confirmed that they will continue to engage with the profession throughout this extended period to provide members with support in preparation of the forthcoming change.

A copy of the Home Survey Standard can be accessed here.

Lockdown inspections: Guidance from the RICS

Thu, 28 May 2020 12:27:20 +0100

Recommendations for non-residential properties

This set of guidance relates to development sites, buildings under construction and in-use buildings. Where a physical inspection is required, this can now go ahead in line with government guidance on social distancing. Risk assessments must address the risks around COVID-19, and professionals must ensure they have obtained a COVID-19 secure certificate prior to inspection. There are also interactive tools available from the Health and Safety Executive to support firms available here.

As before, any restrictions to the service provided by members should be agreed with the client and recorded in writing. Where possible, a disclaimer should be included in the terms and conditions regarding errors and omissions in the service provided which is solely due to limitations on inspecting or visiting relevant areas of the property. We strongly recommend that members record and communicate any such limitations.

Prior to inspection, RICS members should, among other things:

Secure as much information as possible from the client and/or occupier prior to the visit and as part of the pre-inspection research, including property use, occupancy, location, potential risk to occupiers and any other relevant information required for the subject property and instruction.
Ascertain whether there are any client/occupier/building manager expectations or requirements in relation to precautions (including PPE) to be taken and restricted areas of which they need to be aware. This is particularly important if anyone in the building is part of a vulnerable group.
Sanitise equipment in line with current local public health authority guidance periodically and as often as practical.

During the inspection, RICS members should, among other things:

Request that occupiers avoid physical contact
Adhere to PHE (Public Health England) guidance on cleaning hands thoroughly and use of PPE.
Minimise physical contact when accessing the property.

After the inspection, RICS members should, among other things:

Wash their hands again and sanitise equipment, disposing of any PPE
Note any limitations in the inspection and include a disclaimer as described above where possible.
Communicate the outcome of the visit appropriately in line with the agreed terms of engagement.

Recommendations on residential properties

This set of guidance relates to inspections of private residential property and follows the guidance on non-domestic properties in terms of practical steps regarding social distancing, hygiene practices and professional notes on limitations and disclaimers. However, there is no recommendation to obtain a COVID-19 secure certificate prior to inspection.

There are additional questions, more relevant to domestic home inspections, that a surveyor should consider, including:

Whether any pets can be kept at a distance
Whether any members of the household are symptomatic or members of a vulnerable category of people
Whether all areas can be left as open as possible e.g. doors left open for the professional and that key areas are accessible generally e.g. water, gas and electric meter and boiler locations
Whether the occupiers are able to vacate the building for the duration of the internal inspection

Again, it is very important that members record and communicate any restrictions they faced during their inspection.

Those who cannot work from home and who show symptoms can now apply to be tested for COVID-19. More information on testing can be found here.

The specific measures and recommendations are welcome at a time where broad advice has given rise to uncertainty as to best practices. Copies of the full guidance notes can be found here.

Top 10 for the 10s Claims against surveyors and valuers

Wed, 20 May 2020 11:58:02 +0100

Issues including scope of duty, margins of error, lending criteria and contributory negligence took centre stage. During the middle of the decade, limitation became a key issue. As limitation periods for claims arising out of loans made prior to the financial crisis expired, there was a sharp decline in the number of claims against surveyors.

This article is a whistle-stop chronological tour of certain of the key decisions affecting surveyors over the past 10 years.

Click the link below to read the article in full.

RICS Guidance and Key Developments for Surveyors: #2 Coronavirus, valuations and "material uncertainty"

Tue, 12 May 2020 12:30:32 +0100

Since 26 March 2020, when the government issued an order halting viewing and telling home buyers and sellers to delay moving where possible, the market has seen a recorded drop of 40% in the number of homes listed for sale. £82bn of UK property sales have been put on hold, representing around 400,000 stalled transactions.

Despite this fall in sales volume, house prices have remained relatively stable. Government job protection schemes and the availability of mortgage holidays have resulted in relatively few distressed sellers. Once the market sale volume recovers, between government stimulus packages, record low mortgage rates, and developer's short-term incentives, prices will hopefully remain supported.

Given the importance of valuations on supporting the market, the RICS has issued guidance to its regulated members in relation to the impact of COVID-19. It recognises that difficulties in property inspection may arise from firm's internal procedures, Government restrictions and the unwillingness of occupants to grant access. A summary of the guidance follows below, along with our advice on 2 clauses that surveyors might wish to considering adding to their terms and conditions and their reports, if they are undertaking surveys and valuations under the current restrictions.

Where surveyors make any changes to the way in which instructions are carried out as a result of COVID-19, the RICS states that this must be agreed with the client and recorded in writing, with a detailed file note to support the rationale that underpins the changes. The report must make clear any restrictions on information and/or the ability to inspect the property. Instructions should be declined if a surveyor considers that it is not possible to provide a valuation on a restricted basis.

When conducting a valuation, surveyors may use information prepared by third parties so long as they reasonably believe that the information prepared by the third parties is adequate and reliable. Questions of commercial confidentiality and statutory data protection must also be respected. Underpinning all of this, the RICS states that its members must act in accordance with the requirements of the RICS Red Book Global Standards, the relevant sections of which are VPS 1.3.1(i), VPS 2.1, VPS 3.2(g), and VPS 4.8.

When a member concludes that a material uncertainty declaration is necessary, this must be explicitly stated, and regard must be had to VPGA 10 and VPS 3 within the RICS Red Book Global Standards in the decision-making process. If a member does not make a declaration, they should record their reasons for not doing so. The RICS has helpfully provided a form of words to support a declaration of material uncertainty on their website.

As a further protection, we would recommend that when any valuer is asked to undertake a valuation without having been able to inspect the property, either on a 'drive-by' or 'desk-top' basis, we recommend that they include the following words in their letter of engagement:

"We confirm your instruction to undertake this valuation on a "drive-by"/"desktop" basis, so that we will be valuing the subject property without undertaking any inspection. We agree to provide a drive-by/desktop valuation on the basis that neither the author of the valuation nor this firm will have any liability to either you, or any third party with whom you may share the valuation, in the event that there are any defects or issues with the subject property that are material to the valuation but which we were unable to ascertain due to the lack of an inspection."

We also recommend the following clause which addressed the position where the surveyor is asked to rely on the information provided about the property by a third party:

"In order to assist us in valuing the subject property, we have been provided with [insert list of all items provided from any source] ("the Information") and you have instructed us to prepare the valuation on the assumption that the Information is correct. You hereby acknowledge that we will not be in a position to verify the accuracy of the Information. Neither the author of the valuation nor this firm will have any liability to either you, or any third party with whom you may share the valuation, for any losses or potential losses arising from the valuation being provided in reliance on the Information."

Surveyors who include these terms in their engagement letters and valuation reports should be in a better position to defend any claims that may arise in due course, should the valuation come to be challenged by the client, or any third party.

Whilst the negative impact of COVID-19 has been well documented, it is important to bear in mind there is a light at the end of the tunnel. The significant pent-up demand for houses is likely to be released once the Government lifts the current restrictions, which is likely to be accompanied by a commensurate rise in demand for surveys and valuations. Following the advice in this note will hopefully equip surveyors to weather any storm that might follow this enforced calm.

Click here to read the first article in this series.

Impact of COVID-19 on telecommunications apparatus

Wed, 29 Apr 2020 13:11:58 +0100

The emphasis on working from home and the physical separation of extended families mean that a reliable telecommunications network is of paramount importance. This has been recognised by the government who have deemed any key staff working in the telecommunications sector a key worker. This means they are eligible for continuing support from schools to enable them to work irrespective of their childcare obligations whilst schools are closed.

Electronic Communications Code

The importance of properly legislating the changing world of electronic communications has been evident for quite some time. As has been widely reported, the Digital Economy Act 2017 introduced a new Electronic Communications Code (the Code) into the Communications Act 2003. The previous code governing telecommunications equipment was issued in 1984 and so updates were required to ensure that this was still fit for purpose in the fast-changing world of telecommunications technology. The Code grants rights to specific electronic communications operators specified by Ofcom to install, keep installed and make changes to apparatus located in land as well as rights to use that land in connection with the apparatus. These rights will bind not only the current occupier but also the land going forward. They should ideally be obtained by agreement between the operator and the landowner but, if the parties cannot reach a mutually satisfactory agreement, rights can be imposed by the court.

Two stage test court must consider when imposing rights on landowners

In considering whether or not to make an order imposing these rights the court must consider a two stage test set out in the Code. Firstly, the court must be satisfied that the landowner may be adequately compensated by money. Secondly, the public benefit that arises from the making of the order must outweigh the prejudice to the landowner. The Code states that the court must have regard to the public interest in access to a choice of high-quality electronic communications services when making its decision.

Will landowners be adequately compensated?

Unfortunately for landowners, although the Code states that the compensation must be an amount representing the market value of the agreement between the parties, the case of EE Ltd and another v London Borough of Islington [2019] UKUT 53 (LC) shows that the court is unlikely to grant compensation equal to what the landowner considers to be the true market value. The amount should be what a willing buyer would pay a willing seller in a transaction at arm's length with both acting prudently and with full knowledge of the transaction. However, it is also calculated on the basis that the right does not relate to the electronic communications network or by other operators and on the assumption that there is more than one site which an operator could use for the same purpose. This effectively removes any chance of the operator being considered a special purchaser and deliberately disregards the value of the land for the sole use of electronic communications apparatus. The Upper Tribunal considers only the alternative uses for the site and whether the landowner is bound by any additional obligations to the operator. In the case, this resulted in the compensation being awarded being much less than was originally offered. This was a deliberate decision by the Tribunal, which stated that "the whole premise of the Code is that there is a need, in the public interest, to impose agreements on unwilling parties in return for consideration which parliament has deemed to be adequate notwithstanding that it may be significantly lower than would result from unrestricted commercial negotiation".

Public interest v private rights

If landowners are not adequately protected by the provision of compensation then the threshold for the public interest element of the test is important. It is not usual for legislation to deprive the owner of an asset from realising its full benefit as English society has historically gone by the maxim "an Englishman's home is his castle". In one of the first cases heard in the Upper Tribunal on the Code, Cornerstone Telecommunications Infrastructure Limited v University of London [2018] UKUT 356 (LC), the President of the Upper Tribunal commented that the code gives "greater weight to the public interest in the provision of electronic communication networks than the public interest in the preservation of private property rights". This approach has been continued in the later cases of Evolution (Shinfield) LLP and others v British Telecommunications plc [2019] UKUT 127 (LC) and Cornerstone Telecommunications Infrastructure Ltd v Keast [2019] UKUT 116 (LC), both of which found in favour of the operator.

It is generally accepted that the new Code is more operator friendly than the old 1984 code. This has been enhanced by the willingness of the Upper Tribunal to favour the operator rather than the landowner in its interpretation of the legislation.

The clear intention of Parliament behind the Code was to ensure that high quality electronic communications services are available to all, almost irrespective of the impact on individual landowners as a result. The current crisis has made evident to all the crucial importance of electronic communications services in today's interconnected world. It therefore seems unlikely that the approach of the Upper Tribunal will change; if anything it may lean even further in favour of operators in future decisions. Landowners wishing to oppose operators have been put in an increasingly difficult position.

Lease frustration and COVID-19

Tue, 28 Apr 2020 16:12:51 +0100

The general test for frustration is as set out in Davis Contractors Ltd v Fareham UDC [1956] A.C. 696:

"frustration occurs whenever the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract."

(Lord Radcliffe at paragraph 729).

Commercial leases, like other commercial contracts, are capable of being frustrated. Could a tenant argue, therefore, that its lease has been frustrated as it is impossible to currently occupy premises due to the COVID-19 pandemic?

It is worth starting by saying that there are no reported cases in England where a commercial lease has been found by the courts to have been frustrated. However, there are no English cases considering frustration by pandemic either. So how would a Court be likely to respond to such an argument?

Force majeure

Firstly, if there is any kind of force majeure clause in the lease then this is likely to affect any frustration argument. A tenant will not be able to argue that a supervening event which was contemplated directly or indirectly (e.g. by reference to acts of government) by the force majeure clause renders performance of the lease radically different from that contemplated when it was entered into.

Force majeure clauses in leases are rare, but if there is one then it needs to be analysed to see if the risk of pandemic or the consequences of an event such as a pandemic have already been allocated between the parties. This would prevent a frustration argument, although the interpretation of such a clause in itself could very well lead to a dispute.

Impossibility

Assuming there is no force majeure clause, has the mutually agreed purpose of the lease become impossible to perform or will a delay in performance render the lease radically different? The terms of the lease, including the length, will be relevant here.

Lease length

In National Carriers Ltd v Panalpina (Northern) Ltd [1981] A.C. 675, National Carriers Ltd ("NCL") granted Panalpina a 10 year lease of a warehouse which could only be accessed via a single road. The road was closed by the local authority for 20 months due to the dangerous condition of a neighbouring property. Panalpina was unable to access the property and failed to pay the rent. NCL bought action for unpaid rent. Panalpina argued the lease had been frustrated. The House of Lords held that the lease had not been frustrated as the interruption of 20 months in a 10 year term was not significant enough to destroy the contract. It held that although the doctrine of frustration could apply to leases, the circumstances in which it would apply would be rare.

In Li Ching Wing v Xuan Yi Xiong [2004] 1 HKLRD 754 a tenant of a Hong Kong flat was forced to vacate their home for 10 days due to the SARS outbreak. The court held that the 2 year tenancy was not frustrated due to the brevity of the tenant's inability to occupy the premises.

In the case of Krell v Henry [1903] 2 K.B. 740, it was held that a 2 day licence to use a residential room which overlooked Pall Mall had been frustrated. In that case, the Court found that the licence had been granted for a very particular purpose; to watch the coronation procession of King Edward VII. This was the foundation of the contract and when the King fell ill and the procession was cancelled (an event which the Court held had not reasonably been in the contemplation of the parties at the date of the contract) this prevented performance of the contract, which was frustrated.

Although the frustrated licence in Krell v Henry only permitted use of the premises in question for two days for a very particular purpose, there will be cases where short term lets have been made for a particular purpose where a tenant could draw parallels. For example, the let of a student room for a period of 12 months which is taken on the basis of physical tuition being given at a University. If the University will now be closed for a period until September (particularly if this is when the student let expires) then surely there must be an argument that it has been frustrated on the grounds that the mutually agreed purpose of the lease has become impossible to perform.

Other lease terms

It is clear that cases will turn on their own particular facts, and in addition to lease length and whether the parties had a common purpose in entering into the contract (as in Krell v Henry), the alienation provisions in a lease will also be relevant.

In Canary Wharf (BP4) T1 Ltd v European Medicines Agency [2019] EWHC 335 (Ch), the EMA argued that after signing a 25 year lease for its EU headquarters in 2014, the UK's withdrawal from the European Union frustrated the common purpose of the lease. This argument failed. The Court found that, as will be the case in most commercial lease scenarios, the landlord and tenant had divergent purposes in entering into the lease. The landlord was looking to achieve a high rent and long-term cash flow, whilst the EMA was seeking a bespoke premises on a flexible term, paying a low rent. The fact that the lease expressly permitted the EMA to assign or sublet the property in part or whole showed that the lease contemplated the EMA may not remain there for the duration of the lease.

In London and Northern Estates Company v. Schlesinger ([1916] 1 KB 20, the defendant, an Austrian national, took a lease of a residential flat in Westcliffe-on-Sea for a term of 3 years from March 1914. When war broke out in August 1914 the defendant became an alien enemy and by an Order in Council was prohibited from residing within certain specified areas, including Westcliffe-on-Sea. The defendant argued that the lease was frustrated as it was illegal for him to occupy the flat. The Court held that the defendant's personal residence in the flat was not the "foundation of the contract", as the coronation procession had been in Krell v Henry. The defendant had the right to assign or sub-let the flat to anyone to whom the lessors could not reasonably object, and it was not illegal for him to hold the lease, merely to occupy.

Conclusions

Although it is unlikely that landlords and tenants will have expressly contemplated a pandemic such as this during lease negotiations, the general test for frustration sets a high bar that will be difficult to satisfy in a lease context.

Even though performance of a lease may be temporarily prevented, it is unlikely to be prevented entirely save in the context of a short lease or a lease nearing its end. If the period during which a tenant is unable to occupy its premises due to the COVID-19 outbreak is likely to only be short in the context of the overall lease term, then based on the case law above it is unlikely that a tenant could successfully argue its lease has been frustrated. However, where a lease will expire imminently, and the tenant is unlikely to be in occupation again prior to expiry (or only for a very short period) we may begin to see arguments being put forward that the lease has been frustrated.

It is also difficult to see how in most commercial lease contexts the parties would have a joint common purpose which has been frustrated by the COVID-19 outbreak, particularly where the tenant has the right to assign or sub-let. There may be limited scenarios where this could be argued e.g. in the example presented above of the frustration of a short-term student let if it can be argued that the common purpose of the lease was for the tenant to be able to attend physical tuition sessions.

Despite the fact that the doctrine of frustration is likely to be of limited use to a commercial tenant, landlords are in some cases allowing lease concessions by negotiation and certain other government help is at hand for tenants to mitigate lease costs (for example a suspension of business rates for some tenants and government loan schemes).

Retailers: new government measures to provide further protection for tenants against aggressive rent collection.

Mon, 27 Apr 2020 17:00:29 +0100

The legislation suspended all forfeiture proceedings by reason of failure to pay rent until (at least) 30 June 2020. This moratorium on forfeiture was a lifeline for the many retailers that have seen a catastrophic drop in sales during the lock-down. Indeed, data shows that only 48 per cent of rents were collected on the last quarter day (25 March) (Remit Consulting).

While the Act prevents the use of forfeiture proceedings to evict business tenants, it does nothing to stop landlords pursuing other debt recovery methods such as the commercial rent arrears recovery process (CRAR) or the issuance of statutory demands and winding up petitions. As a result, we have seen a spike in the number of landlords adopting these methods over the past few weeks with reports that retailers including Boots, Matalan and Poundstretcher, are all facing legal action from their landlords for unpaid rent (The Telegraph/Retail Gazette).

A statutory demand is a formal demand for payment of an undisputed debt that can be issued by any creditor, including landlords. Upon receipt of the demand, a tenant has 21 days to either pay the sum owed or reach an agreement to pay. If they do not, the landlord can serve a petition to wind up the company, freezing its bank accounts and, eventually, making the company insolvent. Under CRAR, a landlord of commercial premises can serve a 7-day enforcement notice on its tenant for unpaid rent, after which time enforcement agents can enter the tenant's property to seize goods for the landlord.

After a period of significant lobbying by this firm, the British Retail Consortium, UK Hospitality and other significant stakeholders, on 23 April 2020 the Government announced a new tranche of measures to be brought in to "protect [the] UK high street from aggressive rent collection and closure". In the announcement, the Government stated that "the majority of landlords and tenants are working well together to reach agreements on debt obligations, but some landlords have been putting tenants under undue pressure by using aggressive debt recovery tactics".

The new measures, which will be included in the Corporate Insolvency and Governance Bill, will ban the use of statutory demands made between 1 March and 30 June 2020 and winding up petitions presented to court between 27 April and 30 June 2020 where the tenant "cannot pay its bills due to coronavirus". The announcement states that winding up petitions will be reviewed by the court to determine why the company cannot pay and the law will not permit petitions to be presented or winding-up orders made where the inability to pay is the result of COVID-19.

Furthermore, landlords will not be able to use CRAR as a means for recovering rent unless 90 days of unpaid rent is outstanding (as opposed to the current 7 days).

Further detail is needed in order to establish exactly how these measures will be implemented in practice and to resolve ambiguities in the announcement such as:

How will the courts determine whether a tenant's inability to pay is due to COVID-19? There is currently no scope for such procedural considerations within the winding-up process – a court's initial consideration of a petition normally arises at the first hearing, by which stage the petition has been advertised and many of the consequences the Government's measures are aimed to avoid will have already occurred.
Would the inability to pay need to be wholly or only partially down to COVID-19? In many cases, tenants were already facing difficulties before the outbreak.
Does the backdating of the prohibition on the use of statutory demands mean those that have already been served are now automatically void or are they only void if the inability to pay is due to COVID-19? If so, how is that to be assessed before the court's review of the winding up petition?
Will it still be possible to serve statutory demands on tenants whose income streams haven't been that significantly affected by the pandemic?

Whatever the detail, struggling tenants will be relieved to gain additional protection against landlords that had been relying on these forms of debt collection to continue to demand rent.

Landlords, predictably, have not reacted well and many expect another significant fall in rent collections on the next quarter day (24 June). Further breaches of landlords' covenants with their lenders may well be the result.

In the coming days and weeks, we are likely to see increasing pressure from lobbyists, particularly those representing landlords, for the Government to step in to account for the loss of rental income. The chiefs of the British Retail Consortium, British Property Federation and Revo, as voices of both commercial tenants and landlords, have proposed that the Government steps in to cover the fixed property costs (including rent) of businesses that have experienced a dramatic reduction in turnover by introducing a "furloughed space grant scheme" akin to that being offered for employees (FT).

For the time being, we wait to see the finer detail of these measures and how they are interpreted by the English courts. While the courts have long-recognised the right of creditors to enforce debts through winding up petitions, it is equally important - and critical to the survival of the High Street – that commercially-viable tenants who are unable to pay their rents due to current circumstances are protected.

RICS Guidance and Key Developments for Surveyors: #1 Changes to the RICS Minimum Terms

Mon, 27 Apr 2020 11:09:27 +0100

This article addresses the changes to the RICS Minimum Terms that come into effect on 1 May 2020. The remaining articles will look at the RICS guidance on Material Valuation Uncertainty in light of COVID19; the new Home Survey Standards; challenges facing the retail valuation sector; and the EWS1 Form and Fire Safety Issues.

Changes to the RICS Minimum Terms

Surveyors and their Professional Indemnity brokers will be well aware of the obligation to ensure that all previous and current professional work is covered by adequate and appropriate insurance cover.

The RICS has set in place various requirements that a Professional Indemnity Insurance (PII) policy must meet, in order to be considered 'adequate and appropriate': the RICS "Minimum Terms". These requirements have traditionally included obligations for the policy to provide separate insurance cover for each and every claim and for the excess to be paid by the member for each claim to exclude payment of defence costs.

Since the Grenfell tragedy in June 2017, there has been increased focus on the risk of fire in residential properties, particularly in high-rise buildings. The process of valuing high-rise blocks has become fraught with difficulty, as it has become clear that many of the cladding designs, or the products used to clad these blocks, do not comply with the requirements of the Building Regulations. This problem has caused significant disruption to the residential mortgage market, as valuers have been unable to advise lenders, or prospective purchasers, whether remedial works will be required to a particular building and, if so, how much those works will cost and what impact that cost will have on value. In order to address this problem, the EWS1 form was launched in December 2019. The form is used to help inform lenders and purchasers as to whether there is an issue with the external walls systems of a particular building. Its progress is being closely monitored to ensure it can evolve to reflect any issues that have arisen since its implementation and we will be looking more closely at the from in a subsequent article.

In the meantime, the insurers who write PII business have faced a tsunami of claims relating to defective cladding and fire-stopping on hundreds of high-rise blocks. The bill for the necessary remedial works is likely to run into hundreds of millions, if not more. Set against this background, and in order to ensure that there is still sufficient capacity in the insurance market to provide PII to all member firms, the RICS has been in discussion with the listed insurers to agree amendments to the minimum terms. Those amendments can be summarised as follows:

The current exclusion relating to contractual liabilities has been extended to cover any liability incurred where the valuer has relied on the EWS1 Form and the valuation report does not exclude liability to the lender or prospective purchaser for any losses solely caused by the contents of the EWS1 Form being incorrect. This exclusion will only apply to valuations undertaken after 1 May 2020.
The policy will not provide cover for any surveyor completing the EWS1 Form, unless they have sought the insurers' agreement that such activity will be covered, prior to inception of the policy.
Listed insurers may now also impose exclusions for claims that relate to fire safety.
The limit of indemnity may now apply on an aggregate basis, subject to 'Round the Clock' reinstatements. In effect, as the limit of indemnity under the primary policy expires, any excess layer insurance will effectively become the primary layer insurance; or, if there is no excess layer insurance, the limit under the original policy will be reinstated, but subject to any terms and conditions that insurers may impose for that reinstatement.
The policy excess may now apply to defence costs

So what are the practical implications of these changes for surveyors and what particular issues should their brokers bear in mind? Firstly, a surveyor may now have a greater risk from undertaking work generally, as they may have to pay the costs of defending a claim, even if that claim is abandoned without any claim payment. Secondly, should insurers seek to place a limit of indemnity that is expressed to be in the aggregate with 'Round the Clock' reinstatements, it will be very important to understand the exact proposed conditions of reinstatement and whether the terms of any excess layer policy exactly match the terms of the primary policy. Policies offering reinstatements may exclude cover for the purpose of paying more than one claim arising from a repeated error, or from the same claimant, so it will be very important to look closely at how the proposed terms in order to understand how the policy will respond to multiple claims. And if the excess layer policy does not match the primary layer policy, the surveyor may face a gap in cover once the limit of the indemnity under the primary layer has expired and the excess layer policy effectively takes its place.

As to the changes relating specifically to the EWS1 Form, if the surveyor has the necessary fire safety expertise to be completing the form, it will be key for them to provide their brokers/insurers with full details of the systems they have in place to reduce the risk of claims arising from this activity. Brokers should ensure that the insurers' prior approval to undertake this work is obtained so as to be certain that any claims that might arise are covered.

If a surveyor will be relying on the contents of an EWS1 Form prepared by a third party in order to value a property, it is imperative that they include both in their engagement letter and terms and conditions with their client and in their valuation report a term which makes it clear that they will not have any liability either to the client or any third party who may come to see the valuation for any errors in the valuation caused solely by errors in the EWS1 Form. Surveyors may wish to consider including the following wording:

"In arriving at the valuation, we have relied on the EWS1 form, prepared by a professionally qualified third party. In so doing, we are not offering any advice as to the accuracy, completeness or fitness for purpose of the form or its content and neither the individual preparing the valuation nor this firm shall have any liability to you, or to any third party with whom you share the valuation, for any losses or potential losses arising directly and solely as a result of any inaccuracies or errors in, or otherwise in any way related to, the EWS1 Form".

If you have any questions about anything in this article, please feel free to contact Katharine Cusack or Alexandra Anderson.

Could I mitigate my losses by using my premises for other purposes?

Tue, 14 Apr 2020 10:04:13 +0100

Property title

Many titles contain restrictions against certain uses, most commonly restrictions against the sale of alcohol or other uses which elements of society may consider to be socially undesirable. These should be clearly set out in the title deeds to the property.

Lease provisions

Most leases contain controls on the tenant's ability to use the property which the landlord includes to retain some control over its investment. In many cases this enables the landlord to acheive a desirable mix of tenants within their portfolio. If the proposed new use is expressly prohibited or falls outside the general uses permitted your landlord's consent should be sought.

If you wish to allow others to operate from your premises this may also be problematic without your landlord's consent. Some leases allow concessions to operate within a limited area, most allow group sharing to take place, but anything more than this will almost inevitably require landlord's consent and, depending on the terms of the lease and the exact proposals, it may not need to be reasonable when considering the application.

Planning permission

Although changes of use within a use class are permitted without permission from the local authority, change of use outside of the specified use class is deemed to be development and normally requires planning permission. However, it is possible to change between use classes without permission if this change is "permitted development", although it is often necessary to notify the local authority in advance. In addition to permanent changes of use, shops may be able to benefit from temporary flexibility for 3 years if the new use does not take up more than 150 square meters of the premises and other conditions are satisfied. As has also been widely publicised, recent changes mean that restaurants may provide takeaway services for up to a year if the local authority is notified.

Licencing requirements

As well as the property and the lease, legislation will need to be considered. Most people are aware that the sale of alcohol requires a licence but other lesser known licences may be required, such as a licence for the handling of animal food products. If the proposed new use is in an unfamiliar sector it is important to consider whether permission from any other authorities is necessary.

Conclusion

It is possible to change the use of the property but interests of other stakeholders, such as the landlord and local authority, must be carefully considered. In today's climate, with an unprecedented emphasis on working together, such hurdles may be easier to overcome than they would have been previously. This is particularly so if the change of use will be merely temporary to mitigate losses in the current crisis.

Business Rates Reform – Response to COVID-19 and the 2020 outlook

Thu, 02 Apr 2020 17:34:29 +0100

Pandemics aside, retailers have long been looking to the Government to provide much needed support with regards to fixed property costs such as business rates. The Government's announcements on business rates come after their widespread condemnation as a major culprit in the continued demise of bricks-and-mortar retail. Although the tax affects all businesses with property interests, retailers have been paying disproportionate sums - around 25% of all business rates, despite only accounting for 5% of the UK economy (sales as % of GDP) (Retail Economics).

In August 2019, 50 British retailers signed a letter calling on the Government to "fix the broken business rates system" in light of the rapid evolution of the retail industry. Footfall has steadily declined and online sales as a proportion of total UK retail sales rose from 7.3% in 2010 to almost 20% at the end of 2019 (Office of National Statistics).

The Chancellor's budget increased the retail discount for properties with a rateable value of less than £51,000 to 100% and expanded it to include properties used for hospitality and leisure. It was also announced that the existing rates discount for pubs with a rateable value of less than £100,000 would be increased from £1,000 to £5,000. Sunak went further on 17 March to announce that as part of an "unprecedented" bailout package to support the economy, the discount on rates previously announced in the budget would be extended to all businesses within retail, hospitality and leisure, irrespective of rateable value. This means that no businesses within these sectors will pay any business rates for 12 months from 1 April 2020. £2.2 billion of funding has also been provided to local authorities to assist small businesses that do not pay business rates due to Small Business Rates Relief.

The Chancellor said the above measures are temporary to support businesses in the immediate wake of the Covid-19 outbreak. A fundamental review of the business rates system is expected to be concluded before the Autumn budget.

While these "temporary" changes are welcome news to retailers and other businesses across the country, the delay of a review has been seen by some as "kicking it into the long grass" (Colliers). The Conservatives' announcements in the Queen's Speech at Christmas may provide the best indication of what to expect in the long-term. In addition to increasing the retail discount on rates to 50% (currently 100% under the temporary measures), the only other measures proposed were to bring forward the next revaluation date from 2022 to 2021 and move business rates revaluations from a 5-yearly cycle to a 3-yearly cycle to ensure they better reflect properties' current rental values. These measures were criticised at the time as likely to have no "meaningful impact" (Altus Group) and as being merely a "sticking plaster" (BRC) rather than an effective way of dealing with the real underlying problems with business rates.

We wait to see whether there will be the dramatic overhaul to business rates that is needed. Many suggest the system should be replaced with entirely new taxes. For example, the Labour Party, Liberal Democrats and Green Party, amongst others, are pushing for the system to be replaced with a "land value tax" levied against landowners rather than occupiers on the intrinsic value of the land.

Overall, while the emergency measures are welcomed by businesses trying to weather the Covid-19 storm, we remain mostly in the dark as to if, how and when the underlying issues with the business rates system will be dealt with. This is a complex, important issue that must not be allowed to drop down the Government's priority list.

In the meantime, the budget did include a new Digital Services Tax to apply to revenue earned from 1 April by certain online operators. This is a tax of 2% on the revenues generated by UK social networks, search engines and online marketplaces which may at least help in part to level the tax playing field for more traditional retailers.

Business Tenant Protection from Forfeiture under the Coronavirus Act 2020

Mon, 30 Mar 2020 16:45:42 +0100

The press release can be read here.

The Coronavirus Act 2020 (the "Act") received royal assent on 25 March and states that a right of re-entry or forfeiture under a business tenancy may not be enforced by reason of non-payment of rent during the period from 26 March – 30 June 2020, or such later date as decided by further legislation (the "Relevant Period"). Rent is broadly defined in the Act to include "any sum a tenant is liable to pay under a relevant business tenancy". There is also no requirement for the tenant to provide evidence to show that any non-payment arose because of the Coronavirus crisis. Accordingly, the legislation gives tenants a blanket protection against forfeiture for non-payment of all sums payable to their landlord during the period, whatever the reason. The associated "Coronavirus: Guidance for Landlords and Tenants" advises tenants that "…where they can pay the rent as normal, they should do". But this is only advisory.

The forfeiture moratorium may help tenant cash flow in the short-term. However, the Act expressly states that only an express waiver during the Relevant Period will prevent the landlord from forfeiting thereafter. As such, all rent must be bang up to date on 1 July. Otherwise, the landlord can move to seek possession thereafter. Furthermore, landlords retain the right during the Relevant Period to forfeit for other reasons, such as tenant insolvency.

The Act also prohibits any new orders for possession during the Relevant Period, effectively staying existing proceedings in the High Court or County Court for failure to pay rent, even though commenced before the Relevant Period. Where an order for possession has already been given, the Court will either vary it on application by the tenant or it will be automatically extended.

Finally, for tenants who have security of tenure under their leases, the Act provides that a failure to pay rent during the Relevant Period cannot be used as evidence to refuse a new tenancy for "persistent delay" in paying the rent under the Landlord and Tenant Act 1954.

In summary, the short-term cash-flow problem is being pushed up the chain to landlords and, where mortgage holidays are required and requested by landlords, onto their lenders. Exactly how these groups weather the storm remains to be seen. A lot will depend on how long the protections are kept in place and what further support the Government might bring to the table.

Rents, Returns and Turnover in the Age of Online Retail

Fri, 18 Oct 2019 14:52:32 +0100

H&M's proposals have been described as particularly "aggressive" (The Times) as it has also demanded that the cost of returns that come into a particular store, whether from in-store purchases or from online sales, be deducted from its turnover figures.

Alongside rent free periods, break clauses, service charge caps and other concessions, turnover rents have become an increasingly common feature in retail lease negotiations as tenants demand more tenant-friendly deals in light of difficult current trading conditions and the surplus of retail space on the market. These indicate a 'shift in power' in favour of tenants and landlords are aware that, even once lease terms are agreed, they may face further difficulties with tenants, as evidenced by the announcement this month that John Lewis intends to withhold 20% of this quarter's service charge for certain locations.

However, seeking to have the cost of returns deducted from a store's turnover figure should not necessarily be viewed as an "aggressive" move. It is arguably the next logical step for retailers in an increasingly online sales based environment where there is no opportunity to "try before you buy".

Retailers are facing rapidly increasing levels of returned products, posing new challenges in what is already a difficult trading climate. Forbes have reported that between 25 – 50% of online sales by retailers are now being returned either in-store or to distribution centres around the country. The increase has been fuelled by retailers responding to consumer demand for a quick, easy and free returns process, which is necessary to support the online sales boom.

While generous returns policies may have brought a welcome boost to the volume of sales made by retailers, there is a significant downside as retailers receive no income from returned sales and they must spend significant sums cleaning, re-packaging, and re-distributing returned products. Indeed, The Times recently reported that it costs on average £12 to process a returned item and returns cost retailers at least £60 billion a year. Therefore, while such policies have been necessary, retailers such as H&M will be arguing that its landlords should accept their share of the cost.

A common objection raised by landlords to standard turnover rent arrangements is the risk they would take on by binding the financial success of a real estate asset to the performance of a business which they have no control over. Factoring returns costs – especially returns generated by online sales - into turnover rent arrangements brings a further unwelcome layer of uncertainty. Landlords are typically not retail experts and historically they have relied on a steady income stream from inflexible, long term leases with fixed or upward only rent provisions.

However, with current retail vacancy rates, which this summer reached a four year high at 10.3%, and footfall falling to its lowest level in seven years (British Retail Consortium and Springboard survey), there is significant pressure on landlords to be flexible and respond to changing market conditions. In other words, landlords are increasingly being forced to share certain levels of business risks in order to attract tenants.

Alongside other forms of collaboration increasingly present in retail landlord and tenant relationships, such as data sharing and 'place-making' initiatives, turnover rent arrangements are often seen as a way for landlords and tenants to work together to ensure their mutual success. H&M's proposals should be seen in the same light and, in the current climate, they are a step forward in the right direction to ensure bricks and mortar retail remains viable in the future.

Nevertheless, arrangements that deduct returns need to be carefully structured to ensure that they work for both parties and, as with any new innovation, many questions remain that need to be addressed (such as how to allocate online returns to different stores) before the idea is widely accepted. While it is therefore unsurprising to read that some landlords have raised objections, the industry as a whole will benefit if landlords are open to change and willing to engage in the necessary discussions.

Adjudication and liquidation – the TCC gets it wrong…but right

Thu, 31 Jan 2019 10:13:04 Z

Back in August, we wrote a blog about adjudication and liquidation, following the judgment in the TCC case of Michael J. Lonsdale (Electrical) Limited v Bresco Electrical Services Limited (in Liquidation) [2018] EWHC 2043 (TCC) (Lonsdale). The judgment concluded, for the reasons set out below, that an adjudicator does not have jurisdiction to determine a dispute involving a company in liquidation (CIL).

Perhaps unsurprisingly, Bresco Electrical Services Limited (in liquidation) (Bresco) appealed the TCC decision, with the Court of Appeal judgment being issued last week. The Court of Appeal agreed that adjudication involving a CIL would be futile…but not for the TCC's reasons.

The Facts

Lonsdale concerned a 2014 contract whereby Bresco agreed to perform electrical installation works for MJL. Various disputes arose between the parties and Bresco ultimately left site. The parties were in dispute as to the circumstances of the termination when, in 2015, Bresco went into liquidation.

In June 2018, Bresco commenced adjudication proceedings against MJL seeking declarations on a number of different issues, and payment of monies allegedly due to Bresco. Separately, MJL considered there to be sums due to it from Bresco.

MJL invited Bresco to withdraw the Referral and, when Bresco refused, invited the adjudicator to resign due to a lack of jurisdiction. The adjudicator refused and MJL commenced injunctive proceedings under Part 8 to restrain the adjudication. Following the agreement of a stay in the adjudication, the TCC was asked to determine whether the adjudication should continue.

The TCC Decision

Fraser J agreed with MJL and decided the adjudicator did not have jurisdiction on account of Bresco being a CIL.

The Insolvency Rules (set out in our original blog) provide that when a company goes into liquidation, an account shall be taken of what is due from each party to the other in respect of their mutual dealings, and sums due from one party set-off against those due from the other.

Claims and cross claims between the parties becomes a single debt due from one to the other and that debt is one that can only be considered under the Insolvency Rules and not the Housing Grants Construction & Regeneration Act (it not arising under a construction contract). An adjudicator would therefore not have jurisdiction to hear a monetary dispute involving a CIL.

The Court of Appeal

Bresco sought to set aside the order of Fraser J with the primary argument that a dispute under a contract continued to exist when a company went into liquidation, and had not been extinguished or replaced on the occurrence of the liquidation. Rather, the claim still played its part in the underlying calculation of the single debt due under the Insolvency Rules. A dispute involving a CIL could be heard by way of court proceedings or arbitration, and there was no reason as to why adjudication should be treated any differently.

MJL agreed that a CIL could turn to court proceedings and arbitration, but argued that adjudication was different because any decision given in adjudication is temporarily binding. This was not a process envisaged by the Insolvency Rules and the temporary nature of the relief available in adjudication prevented an adjudicator from having any jurisdiction to consider a claim by a CIL.

Perhaps unexpectedly, Coulson LJ agreed with Bresco's position and found that an adjudicator would have jurisdiction to consider a claim advanced by a CIL. He explained that he could see no reason why, purely as a matter of jurisdiction, a reference to adjudication should be treated any differently to a reference to court proceedings or arbitration. If the contractual right to refer the claim to court proceedings or arbitration is not extinguished by the liquidation, then the underlying claim must continue to exist. Moreover, it must continue to exist for all purposes. The same must therefore be said of adjudication. The fact that a reference to adjudication may not result in a final and binding decision cannot mean that the underlying claim is somehow extinguished.

However, Coulson LJ then went on to explain that it is unlikely that adjudication would provide a useful vehicle for claims made by a CIL. He explained that there is a basic incompatibility between adjudication and the regime set out in the Insolvency Rules and that incompatibility limits a CIL's ability to refer a dispute to adjudication. There are several reasons for this, including:

An adjudicator's decision would be of limited use to the liquidator because the result of an adjudication is not the liquidator's best estimate of the value of a claim, but a sum found due by an adjudicator at a particular date, often based on the operation of the contractual payment provisions and the employer's failure to operate those provisions correctly. That is usually far removed from the CIL's overall entitlement to recover, and the result would not be any kind of estimate or assessment of the parties' mutual debts.
When a CIL refers a dispute to adjudication, and succeeds, there is a real risk that the other party which has a cross-claim will have to prove its claim in the liquidation and receive only a dividend instead of being able to recover the sums awarded in the adjudication. On that basis, an adjudication decision favouring a CIL would not ordinarily be enforced by the court and would be stayed.
It would be wrong, as a matter of principle, for the other party to incur costs defending an adjudication brought by a CIL when it knows that, even if it was unsuccessful in the adjudication, it would be able to resist summary judgment or enforcement as of right, and would have to spend even further (likely irrecoverable) sums to achieve that result. Even in the unlikely event that summary judgment is granted, it would still be wrong as a matter of principle to require the other party to bring its own claim by way of court proceedings or arbitration to overturn the result of the adjudication, incurring more costs in the process and facing the possibility that any recovery may be rendered difficult or impossible by the liquidation.

As such, the incompatibility between adjudication and the regime set out in the Insolvency Rules, and a CIL's likely inability to enforce a decision, makes adjudication a futile exercise. Coulson LJ concluded that adjudication in such circumstances should not be permitted to continue and it would be just and convenient to grant an injunction to stop the adjudication.

What does this all mean?

Coulson LJ overruled Fraser J's decision and decided that an adjudicator does have jurisdiction to hear a dispute involving a CIL. However, he continued to conclude that a responding party to an adjudication involving a CIL should obtain an injunction to stop the adjudication on the basis of adjudication being incompatible with the Insolvency Rules.

In practice, whilst we have seen the number of adjudications brought by insolvency practitioners has declined, we anticipate some CILs will continue to attempt to refer disputes to adjudication despite this judgment. Whether the court will grant an injunction will depend on the facts of each case. A key issue will be whether the responding party has a cross-claim and the legitimacy of that cross-claim is likely to be considered by the court. In Lonsdale, Bresco had been aware of MJL's cross-claim for some time before Bresco referred the dispute to adjudication, which led Coulson LJ to conclude it was legitimate. It is important that any claims and cross-claims involving CILs are assessed and notified to the CIL promptly to strengthen the responding party's position should it need to apply for an injunction.

What lies ahead for the construction industry in 2019?

Tue, 22 Jan 2019 10:19:28 Z

Brexit

The impact of Brexit on currency markets and affects on the cost of imported materials and the UK labour market was felt almost immediately after the referendum in June 2016. Between now and 29 March there is the possibility for further referendums which will bring more uncertainty and affect the appetite for fixed-price contracts in the construction industry. There is likely to be continued focus on the change control provisions in contracts to try to mitigate some of the negative affects on labour and currency fluctuations.

Before Christmas the Government proposed draft changes to the procurement Regulations to address the scenario of a no-deal Brexit. Public procurement rules are already enshrined in UK law therefore the effect of the changes are limited to more of a 'spring clean' to reflect the exit from the EU. However, the Government is planning to set up a UK e-notification service if access to OJEU is closed off on 29 March.

There is no doubt that following Brexit projects requiring public or private finance will be more dependent on the health of the UK economy if any EU funding routes are withdrawn.

The Grenfell Enquiry

Whilst the majority of social residential developments have either begun or completed works to remove combustible cladding, at the end of 2018 it was reported that only 14 out of 176 private residential apartment blocks had begun or completed the removal works. According to the Ministry of Housing, Communities and Local Government, there were no plans to carry out the removal of combustible cladding on 76 private residential blocks.

We are likely to hear more on the issue of 'value engineering'. Dame Judith Hackitt highlighted the risks associated with value engineering during her speech at the annual conference of the Chartered Association of Building Engineers in October 2018. In the current climate, employers are likely to place greater emphasis in the bid process on technical specifications, materials testing and health and safety assessments rather than focusing on who can do the job cheapest.

We expect the impact of the Grenfell tragedy, on cladding, fire doors and the wider construction industry, the be felt acutely over the next 12 months and beyond.

Read more on the Government's plans to take forward the recommendations from Dame Hackitt's review of the Building Regulations here.

Impact of S&T (UK) Limited v Grove Developments Limited

In November 2018 the Court of Appeal concluded that that an employer who has failed to serve both a payment notice and a pay less notice can nevertheless commence an adjudication to have the true value of an application assessed and to reclaim any sum which has been overpaid. This was a significant departure from previous 'smash and grab' cases. This confirmed the availability to employers of true value adjudications even if they have failed to issue a timely payment or a valid pay less notice

The impact of this decision will play out in 2019. However, it may be something that is addressed by the Department for Business, Energy & Industrial Strategy's review of the 2011 amendments to the Construction Act when finally published. The logical step would appear to be an amendment to the Construction Act so that the issues that arose from S&T v Grove are resolved in legislation although this may be unlikely.

VAT

The new VAT "reverse charge" regime will come into effect for certain building and construction services on 1 October 2019. This will require the recipient of services, rather than the supplier, to account for VAT due. Subcontractor invoices will therefore no longer include VAT but will require the main contractor to account for the VAT. However, to determine whether the reverse charge applies, it will be necessary for contractors to disclose to their subcontractors whether or not they are at the end of the supply chain – information which could, in some cases, be commercially sensitive. Some businesses may also suffer a loss of cash flow where VAT is no longer charged as they will no longer be able to use the VAT they collect from customers as working capital before it is paid over to HMRC.

Aftermath of Carillion's Insolvency

The aftermath of Carillion's collapse will no doubt continue to be felt as lenders continue to reduce their exposure to the construction market. Many tier one contractors are seeking to secure new financing terms with lenders and it is possible we may see some more company failures.

PFI

Following the Chancellor's announcement in October that PFI and PF2 funding models are to be scrapped, projects like the Stonehenge Tunnel and the Lower Thames Crossing have had their funding plans pulled from underneath them. However, the Government has confirmed that both projects will be publicly funded.

The Government has suggested that the funding model known as regulated asset base (RAB) could be deployed to replace PFI/PF2 models. The RAB model, similar to the model used for the Thames Tideway Tunnel, sees private investors buy stakes in long term infrastructure projects and provides protection to financiers by regularly reviewing pricing. In the case of Thames Tideway consumers fund the construction of the project through their water bills. If events cause planned costs to be exceeded the regulator Ofwat steps in to ensure investors are protected. Like PFI and PF2, RAB is not included on the Government's balance sheet making it attractive to the Treasury.

Ground conditions: An entitlement to additional costs despite accepting risk?

Tue, 08 Jan 2019 09:41:00 Z

The High Court published a decision late last year which deals with a frequently encountered issue; a claim for additional payment where a sub-contractor encountered adverse ground conditions.

The sub-contractor, Clancy Docwra, was engaged by E.ON Energy to excavate trenches in connection with the installation of a district heat network in central London. During the course of the project, Clancy Docwra encountered adverse ground conditions (specifically underground brick walls and rubble) and the parties were in dispute over what additional entitlement (if any) Clancy Docwra had in relation to those works.

The allocation of risk

The subcontract was based on the JCT Standard Building Sub-Contract with bespoke amendments, one of which placed the risk of encountering adverse physical conditions on Clancy Docwra:

"2.1.8 - Notwithstanding any other provision of this Sub-Contract, the Sub-Contractor shall not be entitled to any extension of time or to any additional payment, damages, or direct loss and/or expense on the grounds of any misunderstanding or misinterpretation of any matter set out in clause 2.1.7, or his failure to discover or foresee any risk, contingency or other circumstance (including, without limitation, the existence of any adverse physical conditions or artificial obstructions) influencing or affecting the Sub-Contract Works"

Despite this provision, Clancy Docwra argued that the risk of encountering the conditions it encountered was retained by E.ON Energy on the basis that the conditions it encountered fell outside the scope of its Sub-Contract Works.

The "Sub-Contract Works" were defined as "the works referred to in the Sub-Contract Agreement and described in the Numbered Documents to be executed as part of the Main Contract Works, including any changes made to such works in accordance with this Sub-Contract.”

Essentially Clancy Docwra's position was that the Numbered Documents excluded the particular circumstances which were in dispute. Accordingly, those circumstances were excluded from the scope of the Sub-Contract Works which were defined by reference to the Numbered Documents. As the work fell outside the scope of the Sub-Contract Works, the allocation of risk (including the clause noted above) was simply irrelevant.

The decision

The parties initially adjudicated the dispute and E.ON Energy was successful. However Clancy Docwra then referred the matter to the Court for declaration in relation to the above arguments the Court agreed with Clancy Docwra's argument.

The Court undertook a detailed review of the Numbered Documents (which included requests for tender clarifications and responses) and determined that Clancy Docwra were "right to say that their works did not include the matters that were specifically excluded by them from their scope of works as set out in their tender submissions and the Post Tender Minutes [which were Numbered Documents]"

Comment

Express clauses which place the entire risk of adverse ground conditions on contractors/sub-contractors are common. However what this decision highlights is that such clauses are of little use to those that seek to rely on them if the scope of the work is not within what the sub-contractor has agreed to carry out.

In this case (as is also common) the scope of work was defined by reference to numbered documents. It is thus essential for parties placing a contract to ensure the scope of the work is correctly defined in those numbered documents. That should include ensuring that any clarifications or exclusions which are set out in tender documents are fully understood.

We frequently see responses to tenders including clarifications / exclusions from the work set out in tender enquiries. This case highlights the importance of ensuring those clarifications / exclusions to the scope of work are agreed or are removed from the documentation (e.g. by seeking a revised proposal is produced) where the documents are to define the scope of work.

Finally, for those seeking additional cost and/or time in connection with adverse ground conditions encountered it highlights an avenue of argument which may have previously not been considered.

Ban of combustible materials in cladding

Fri, 21 Dec 2018 14:49:02 Z

This legislation comes into force today and amends the Building Regulations 2010 by introducing:

new requirements in respect of external walls and specified attachments;
a new category of material change of use and requirements in respect of any such change; and
amendments to Approved Document B, Volume 2 and Approved Document

External walls and specified attachments

All materials which become part of an external wall or a specified attachment (balconies, solar panels and sunshading) must achieve European Class A2-s1, d0 (limited combustibility) or Class A1 (non-combustibible).

This requirement applies to any building with a storey at least 18m above ground level and which contains:

one or more dwellings;
an institution; or
a room for residential purposes,

Including student accommodation, care homes, sheltered housing, hospitals and boarding school dormitories. It does not apply to any room in a hostel, hotel or boarding house or any commercial buildings.

The amended regulations will apply to the construction of all such buildings going forward except where:

a building notice or an initial notice has been given to, or full plans deposited with, a local authority before 21 December 2018; and
the related building work has started before 21 December 2018 or is started before 21 February 2019.

Material change of use

Where the use of a building is changed so that the building becomes a building described in regulation 7(4) (a building with a storey at least 18m above ground level containing one or more dwellings, an institution or a room for residential purposes):

the construction of the external wall and specified attachments must be investigated; and
where necessary, work must be carried out to ensure they only contain limited combustible or non-combustible materials.

In short, for any such change of use any combustible materials in the external walls or specified attachments will need to be removed and/or replaced.

Amendments to Approved Documents

Approved Document B (Fire safety) volume 2: Buildings other than dwellinghouses (2006 edition incorporating 2010 and 2013 amendments) and Approved Document 7 (relating to materials and workmanship) have been amended to give guidance on the restriction on the use of combustible materials in external walls.

The full text of the Building (Amendment) Regulations 2018 can be found here. Developers and contractors should take action to ensure that their schemes are compliant.

Further Amendments?

The Government's Housing Minister, James Brokenshire, has also confirmed the government will “take forward all of the recommendations” from Dame Hackitt’s review into Building Regulations and fire safety post-Grenfell, which include:

a new regulatory framework for all high-rise buildings over 10 storeys;
establishing a Joint Competent Authority (JCA) to oversee the management of safety risks throughout a building’s lifecycle (comprising LA building standards, fire and rescue and HSE):
a mandatory incident reporting system for duty-holders including contractors with concerns about safety;
rigorous set of roles and responsibilities for duty-holders (which should broadly align with those set out in Construction (Design and Management) Regulations 2015);
a series of robust gateway points for every high-rise project to pass through to ensure they meet building and fire safety regulations;
any changes on a building will need to be signed off by the JCA;
a wider range of powers given to authorities, with more serious penalties against firms for those that do not comply;
a new overarching body to provide oversight of competence requirements and training for those carrying out construction work;
a new, more effective, testing regime for construction products including clearer product labelling and product traceability;
a new digital record for all new high-rise buildings that will chart work and changes from design right through construction up to occupation; and
poor procurement tackled so that high-safety and low-risk options are prioritised above cost when a building is procured.

How long does your collateral warranty last?

Wed, 29 Aug 2018 09:34:26 +0100

The Technology and Construction Court's recent decision in Swansea Stadium Management Company Ltd v City & County of Swansea & Anor [2018] EWHC 2192 (TCC) has provided judicial guidance on the effectiveness of no greater liability provisions.

The matter concerned the construction of the Liberty Stadium in Swansea. RPC acted for Interserve who undertook the construction of the stadium. Construction was complete in 2005 however in 2012 the Claimant, who is the management company for the stadium (SSMC) commenced proceedings against Interserve and the local Council (the freehold owner of the stadium) alleging there were defects with the stadium.

The judgment concerned the claim by SSMC against Interserve that was made pursuant to a collateral warranty Interserve provided to SSMC.

The project reached practical completion on 31 March 2005 but the collateral warranty was provided to SSMC after that date. SSMC issued its claim form on 4 April 2017 (i.e. 12 years and 4 days after practical completion). Ordinarily a party to a deed (collateral warranties are usually executed as deeds) has 12 years from the date of a cause of action arising to bring a contractual claim before that claim becomes statute barred by limitation. As the claim was brought more than 12 years from the date of practical completion, Interserve's position was that the majority of SSMC's claims under the collateral warranty were barred by limitation. Interserve's position was that on a proper construction of the warranty it had retrospective effect such that the same limitation period applied to the collateral warranty as applied to any claim under the building contract. Interserve applied for summary judgment on the limitation point.

In response, SSMC argued that the earliest date limitation could run from was the date the collateral warranty was provided and because the warranty was provided after the date of practical completion the claims were not barred by limitation. SSMC also made submissions that, in fact, practical completion was not achieved on 31 March 2005.

As a summary judgment hearing, a more stringent test had to be applied by the Court, namely whether SSMC's claim on the relevant points had no reasonable prospect of success. Mrs Justice O'Farrell gave judgment and was satisfied SSMC's claim had no reasonable prospect of success. On the central issue she noted "Whether or not a clause in a contract is capable of having a retrospective effect depends on the express or implied intention of the parties" and "In my judgment, the words used in the Collateral Warranty and the factual matrix indicate that the parties intended the warranty to have retrospective effect"

Mr Justice O'Farrell cited four reasons for her decision:

The purpose of the collateral warranty was to provide a direct right of action by SSMC against Interserve in respect of its obligations under the building contract to which the SSMC was not a party. Such purpose was served by a warranty that gave SSMC the same rights against Interserve but did not require any extension of those rights.
The recitals to the collateral warranty explained the interest of SSMC, as tenant, and that interest was to ensure that Interserve performed its contractual obligations in the underlying building contract.
The collateral warranty specifically referred to the past and future performance by Interserve of its obligations under the building contract. When read together with Article 10 of the building contract (which did not contain any time limitation on a written request for Interserve's to execute a collateral warranty), it indicated that the collateral warranty was intended to cover the full scope of the contractual works regardless of when it was executed.
There was a proviso to clause 1 of the collateral warranty that read "Provided that [Interserve] shall have no greater liability under this Agreement than it would have had if [SSMC] had been named as joint employer with the Employer under the Contract". Mrs Justice O'Farrell said this 'no greater liability clause' was the clearest indication that the parties intended SSMC to be in the same position vis-à-vis Interserve as the employer was under the building contract. She also noted "The commercial purpose served by this provision is that it gives the parties clarity and certainty as to the extent of any liability in respect of the works, including the period of limitation."

With regard to the practical completion argument put forward by SSMC, the Court noted the existence of the deeming provision in the building contract and said "Regardless of the physical state of the works at 31 March 2005, or any ongoing works carried out by the Second Defendant, they were deemed to be complete on that date. Clause 16.1 expressly provides that practical completion was deemed to have occurred "for all the purposes of this Contract"."

Comment

The case is a welcome decision for the industry and in particular those that provide collateral warranties as most would expect that the limitation period under a collateral warranty would be co-terminus with the limitation period under the underlying contract. It also emphasises that deeming provisions in contracts will be upheld.

However it is important to recognise the judgment does not close the door on the possibility of a limitation period under a collateral warranty being longer than the limitation period of the underlying contact. As the Court recognised it will depend upon the express or implied intention of the parties. Accordingly, those providing warranties would be well advised to ensure the warranties they provide make it expressly clear that the warranty is co-terminus with the underlying contract.

Adjudication and liquidation – the final word?

Fri, 03 Aug 2018 11:41:39 +0100

That, however, has not prevented CILs and those advising them from commencing adjudications, which, at best, result in wasted time and costs for the unfortunate responding party (as well as potential liability for adjudicator's costs due to the joint and several liability that the parties have).

Tuesday's decision in the TCC case of Michael J. Lonsdale (Electrical) Limited v Bresco Electrical Services Limited (in Liquidation) [2018] EWHC 2043 (TCC) (Lonsdale) has (potentially…) provided the final word on adjudications brought by CILs.

In Lonsdale, the head of the TCC, Fraser J considered whether "a company in liquidation can refer a dispute to adjudication when that dispute includes (whether in whole or in part) determination of a claim for further sums said to be due to the referring party from the responding party?"

Lonsdale

Michael J Lonsdale (MJL) and Bresco Electrical Services (Bresco) entered into a contract in 2014 whereby Bresco agreed to perform electrical installation works for MJL. Various disputes arose between the parties and Bresco ultimately left site. The parties were in dispute as to the circumstances of the termination but in 2015 Bresco went into liquidation and as a result, its dealings are governed by the Insolvency Rules 1986 (the 1986 Rules).

In June 2018, Bresco commenced adjudication proceedings against MJL seeking declarations on a number of different issues, including that payment of monies was due from MJL to Bresco. Separately, MJL considered there to be sums due to it from Bresco. In essence, there were claims and cross-claims between the parties.

In the circumstances, MJL invited the Bresco to withdraw the Referral and, when Bresco's representatives refused, invited the adjudicator to resign due to a lack of jurisdiction. The adjudicator refused and MJL commenced injunctive proceedings under Part 8 of the CPR to restrain the adjudication. Following the agreement of a stay in the adjudication (which the adjudicator sought to circumvent), the TCC was asked to determine whether the adjudication should continue.

Rule 4.90 of the 1986 Rules provides:

(1) This rule applies where, before the company goes into liquidation there have been mutual credits, mutual debts or other mutual dealings between the company and any creditor of the company proving or claiming to prove for a debt in the liquidation.

(2) An account shall be taken of what is due from each party to the other in respect of the mutual dealings and the sums due from one party shall be set off against the sums due from the other...

(4) Only the balance (if any) of the account is provable in the liquidation. Alternatively (as the case may be) the amount shall be paid to the liquidator as part of the assets.

The Insolvency Rules 2016 (the 2016 Rules) contain very similar provisions and whilst Lonsdale was decided on the 2016 Rules, the 1986 Rules and the 2016 Rules (together, the Insolvency Rules) are very similar and Fraser J confirmed his decision as applicable to both.

The Insolvency Rules treats the situation the parties found themselves in in Lonsdale as mutual dealings (that is, mutual credits, debts or other dealings between a company and a creditor) and accordingly, Fraser J confirmed that, when this occurs, the only claim the exists between the parties is the claim for the net balance under Rule 4.90:

I therefore conclude that, as at the date of the liquidation, and as a direct result of what occurs upon the appointment of the liquidator and the operation of the Insolvency Rules, the disputes between [MJL] and Bresco that consist of claims and cross-claims between them become replaced with a single debt. That is thereafter the dispute, namely the result of the account that the 2016 Rules require to be taken to determine the balance payable in which direction…

…I therefore entirely agree with that particular part of the judgment in [the earlier case of] Enterprise where the conclusion to this part of the analysis is provided in the following terms:

“79. It follows from my analysis in Section 7 above that the adjudicator does not have the necessary jurisdiction to deal with this dispute. The only claim now extant between the parties is the claim by Utilities as assignees for the net balance under Rule 4.90. That is not a claim which could be referred to adjudication and it is not the claim that has been purportedly referred to this adjudicator. The claim which has been purportedly referred to the adjudicator no longer exists. Further, for the reasons noted above, Rule 4.90 does not contemplate that the account process would be taken in a piecemeal or slice-by-slice fashion, by reference to potentially different tribunals, including adjudicators who could, at most, make a decision that is only of temporary effect.”(emphasis added)

In my judgment that is precisely what happens to claims and cross claims when a liquidator is appointed. They cease to be capable of separate enforcement upon, or at, the date of liquidation.

Accordingly, the dispute between the parties was no longer a dispute arising from a construction contract, but rather one arising under the Insolvency Rules. After liquidation, the only dispute that remains in law is that of taking the account under the Insolvency Rules and an adjudicator cannot conduct such an account. On that basis, it is not a claim which can be dealt with in adjudication. The phrase “a dispute arising under the contract” in the Housing Grants Construction & Regeneration Act, or “any dispute under the contract” in the Scheme both include the important words “under the contract”. Upon the appointment of the liquidator, any number of disputes between the parties to a construction contract become a single one, namely a dispute relating to the account under the Insolvency Rules. It becomes a claim for the net balance under Rule 4.90 of the 1986 Rules or Rule 14.25(2) of the 2016 Rules.

Accordingly, in Lonsdale, the Judge concluded:

This therefore means that the adjudicator in this case does not have jurisdiction to determine the dispute referred to him. The dispute referred to him included both money claims and cross claims, and an analysis of how much was owed to Bresco. The answer to the issue that I framed at [22] above is as follows:

A company in liquidation cannot refer a dispute to adjudication when that dispute includes (whether in whole or in part) determination of any claim for further sums said to be due to the referring party from the responding party.

Practical implications

Essentially, where a CIL has made claims for monies owed by a party, and that party also has claims for monies owed by the CIL, the claims between the parties are mutual credits and/or mutual debts between the company and in accordance with the Insolvency Rules. An account must be taken on liquidation of those dealings in each direction to arrive at a single balance due either to, or from, the CIL. An adjudicator cannot conduct such an exercise under the Insolvency Rules and would not have jurisdiction to determine such a dispute referred to him.

A CIL cannot therefore refer a dispute to adjudication when that dispute includes (whether in whole or in part) determination of any claim for further sums said to be due to the referring party from the responding party. A CIL who does so should discontinue with such proceedings as, from the moment the CIL went into liquidation, adjudication stopped being a forum for any disputes which involve mutual claims, even if those claims arise from different contracts. Should the CIL refuse to discontinue the adjudication, then the adjudicator must resign.

Despite this decision only being published on Tuesday (31 July) we have already successfully asked an adjudicator to resign in very similar circumstances (having first invited the Referring Party to withdraw their claim).

As Fraser J notes in the Lonsdale judgment, "I would be surprised if many, or indeed any, adjudicators would decline to resign if a responding party brought the relevant passages of...this case to his or her attention during an adjudication."

Haberdashers’ Aske’s Federation Trust v Lakehouse Contracts [2018] EWHC 588 (TCC)

Mon, 30 Jul 2018 12:10:00 +0100

Background/issues

The Claimants owned and operated a School. The First Defendant (Lakehouse) was appointed as the main contractor for an extension project and the Second Defendant (Cambridge Polymer Roofing) was their appointed roofing sub-contractor. A fire occurred at the project site which caused extensive damage to the buildings. The Claimants brought proceedings for damages
against the First Defendant and the claim was settled for £8.75m, paid by a project-wide insurance policy which covered a list of insureds, including the First Defendant contractor and its sub-contractors.

The Second Defendant had also expressly agreed in its sub-contract with the First Defendant that it would obtain its own insurance cover in respect of its construction works in the sum of £5m (which it had done). The project insurers sought a contribution/indemnity from the Second Defendant’s insurers. The Second Defendant argued that, notwithstanding the express term in the sub-contract that it obtain its own insurance, the project insurance had been intended to, and did, include it as an insured party and sought a declaration to that effect.

Issues to be determined

To what extent did the Second Defendant sub-contractor have the benefit of the project-wide insurance policy and could the project insurers pursue a subrogated recovery from the Second Defendant’s insurers?

Held

The Court held that the Second Defendant was not entitled to the benefit of the project wide policy, to the extent that it had its own insurance. Recovery from the Second Defendant’s insurance policy was therefore allowed. In deciding the issues, Mr Justice Fraser helpfully discussed the question of how subcontractors in the construction industry come to participate in project insurance policies and provided useful guidance. Three ways were discussed – Agency and ratification, Standing offer, Implied conduct.

Agency – The theory that the contractor was an agent of the sub-contractor when procuring project insurance was deemed to be stretching the principles of agency and posed a problem for subsequent subcontractors as they would not have been identifiable at the time the insurance was procured and therefore could not ratify the procurement of the insurance under the principles of agency. The Court did not favour this theory.
Standing offer – The favoured method was by acceptance of what could be deemed a standing offer of insurance to all those persons who are subsequently identified as members of a defined grouping, namely the First Defendant’s sub-contractors. The offer is accepted by the execution of the sub-contract. However, in this instance the express term in the Second Defendant’s sub-contract for them to obtain their own insurance meant that they never joined the “defined grouping” to which the offer was being extended (at least not to the extent that it had its own insurance cover), and therefore the act that would have included the Second Defendant in the project insurance, namely entering into the subcontract, did not constitute acceptance, where the agreement expressly stated that the sub-contractor should have its own insurance.
Implied conduct – It was considered that a sub-contractor could be deemed included in the project insurance from their conduct, negating the need for offer and acceptance as required for a standing offer. The Judge did not comment on whether this was a correct method but excluded it as a possibility on these facts as it was determined that the parties’ intention on the face of it was for the Second Defendant to obtain their own insurance. This express term in the contract prevented the possibility of implying a term to the contrary and to say that the sub-contractors insurance would never be called on in such circumstances would be to go against the express intention of the contract.

Summary/conclusion

To the extent that the Second Defendant had expressly agreed to have insurance in place, the Second Defendant was not entitled to the protection of the project insurance. The express agreement in the sub-contract negated any standing offer, over-rode any implied conduct and prevented any implied contractual terms to the contrary. Therefore, the project insurers were entitled to bring a subrogated recovery claim and could recover the full amount of the insurance cover that the Second Defendant had agreed to obtain, as a contribution/indemnity.

Practical points

This case does not provide definitive guidance. The Court did not go so far as to say the agency theory is completely wrong, or that the only correct approach is the standing offer theory. However, this seems the most plausible scenario from the useful guidance that is given. Contractual parties should be mindful of the primacy of any express agreements in subcontracts which will over-ride any informal intention or implied conduct in relation to project wide insurance cover and the right of subrogated recovery from a sub-contractor’s insurer.

Back to the Construction newsletter, July 2018

SSE Generation Ltd v Hochtief Solutions AG and another [2018] CSIH 26

Mon, 30 Jul 2018 12:10:00 +0100

This recent case considered the principles in the Supreme Court case of MT Højgaard A/S (Respondent) v E.On Climate & Renewables UK Robin Rigg East Limited and another (Appellants) and saw the courts once again opine upon the complex issues arising in respect of a contractor’s fitness for purpose contractual obligation and the duty a professional owes
in common law to exercise reasonable and care when providing design services.

Background

The case involved the collapse of a tunnel in Scotland that formed part of an hydroelectric scheme that had been design and built by Hochtief Solutions AG and Hochtief (UK) Constructions Ltd (the Contractor) for the SSE Generation Ltd (the Employer) under a NEC contract. The contract contained a fitness for purpose obligation on the Contractor to build a tunnel that would not collapse for 75 years. It also included Option M which limits the Contractor’s design duties to those of reasonable skill and care.

The tunnel collapsed six months after construction and a dispute arose as to whether the Employer or the Contractor was liable for the remedial costs which amounted to around £107m.

Many issues were debated, including what caused the collapse of the tunnel and what constituted a defect under the terms of the contract. Of particular interest, however, was the further debate as to how the courts may interpret a contract containing both a duty to undertake the design element of a project with reasonable skill and care as well as a fitness for purpose obligation.

In this case, the court held that the defect that caused the collapse of the tunnel was not design related and that the Contractor had complied with its reasonable skill and care duties in that respect. Instead, the defect was found to be linked to the implementation of the design – the workmanship element of the services. As a result, the fact that the Contractor had complied with its design duties was not enough to provide a defence since the contract contained a fitness for purpose obligation on the Contractor to build a tunnel that would not collapse for 75 years.

Conclusion

Contractors often seek to limit their duties in respect of the design element of a project with clauses similar to the Option M clause in the NEC Contract. In doing so, they seek to differentiate their design duties from their contractual obligation to provide a product that is fit for purpose. The issues in this case, therefore, extend beyond NEC contracts and are of potential relevance to all contractors operating under design and build contracts.

This decision serves to remind us how fact specific and complicated the debate around fitness for purpose vs. reasonable skill and care remains when considering design and build contracts. While it is hard to draw any firm conclusions at this stage, the decision suggests that, when interpreting contracts, the Courts are becoming more willing to favour and emphasise a contractor’s fitness for purpose obligation over any less onerous duties of reasonable skill and care.While the case was heard in the Scottish courts, it is anticipated that the case will go to the Supreme Court given the principles and the sums at stake.

Back to the Construction newsletter, July 2018

What’s on the horizon?

Mon, 30 Jul 2018 12:10:00 +0100

It’s been a couple of years but we are still waiting for the implementation of BIM Level 3. The next level of BIM, which is intended to address the flaws in BIM Level 2, was launched by the government in March 2015, and the plan was to have five years of preparation followed by five of implementation, with early adopter projects beginning in 2017/18. Indeed, government projects were supposed to start using BIM Level 3 in January 2017. However, there is no update as to how its development is going and the proposals for industry-wide implementation are still unknown.

Meanwhile, the government has extended the deadline for the Shorter Trials Scheme and the Flexible Trials Scheme pilots to 30 September 2018. The government introduced these pilot schemes in October 2015 with the intention that they will lead to shorter trials at the High Court in London, at a more reasonable and proportionate cost than usual litigation. In summary, the Shorter Trials Scheme applies to simple cases where no extensive disclosure is required, particulars are less than 20 pages, and trial is no more than four days long whilst the Flexible Trials Scheme requires parties to agree to a truncated procedure which limits disclosure and oral evidence, and focuses on written evidence and submissions. Uptake on either Scheme has been limited – only a small number of cases have been issued or transferred to the Shorter Trials Scheme and fewer have used the Flexible Trials Scheme. It is not clear whether this slow uptake is due to lack of public awareness, caution of parties, or perhaps some other factor, but the deadline for the Schemes has been extended as a result. More information on the Schemes can be found here.

From 18 October 2018, all contracting authorities will be required to permit the submission of electronic tenders. This extends to all communication and information exchanged in the tender process. It has been implemented through the Public Contracts Regulations 2015 and applies to contracts that are above £164,176 in value. The Regulation is intended to promote traceability, transparency and auditability in the procurement process.

Finally, the government is due to unveil new legislation that works to reverse charge VAT in the construction sector. The new reverse charge VAT scheme will transfer the burden of liability for VAT from the supplier to the recipient, where it will be the supplier who has to account for VAT that is due. The new regime works to combat a common issue of fraud in the construction industry whereby supply chains are artificially extended in order to avoid paying VAT. By requiring the recipient to pay VAT directly to HMRC, it avoids the need for VAT being collected at a later date and risking exposure to fraud.

Back to the Construction newsletter, July 2018

R.G. Carter Buildings Limited v Kier Business Services Limited [2018] EWHC 729 (TCC)

Mon, 30 Jul 2018 12:09:00 +0100

Agreements reached “in principle”, or said to be “subject to contract” or similar, could not be binding agreements, and therefore time could not cause time to begin to run. The facts of the case were as follows: In 2002, RG Carter built a new science block for Lincolnshire County Council at Boston Grammar School. Unfortunately, the block, which had been designed by Kier, suffered water ingress problems. The Council brought arbitration proceedings against Carter in 2015.

Alongside the arbitration, between March and April 2015, Carter and the Council entered into settlement negotiations. At that stage, it was agreed that Carter would carry out remedial works, some at its own cost and some with the costs shared with the Council. The Council distilled the proposal on 16 April 2015 in correspondence marked “WITHOUT PREJUDICE SAVE AS TO COSTS” and. “SUBJECT TO CONTRACT”. Further correspondence followed clarifying the precise scope of the remedial works. Carter conducted investigatory surveys in May, and carried out preparatory work in June.

Eventually, a final agreement was signed on 29 June 2015. Carter decided to seek a contribution from Kier in respect of the c£200k costs it had incurred as a result of the settlement. Carter and Kier entered into a standstill agreement on 28 April 2017, before Carter issued proceedings on 20 September 2017. Kier asserted that the proceedings were out of time, since under s.10 Limitation Act; proceedings had to be brought within two years of the date on which a right of action accrued. Kier’s position was that the remedial works had been agreed in principle by 16 April, meaning that time began to run from that date. On that basis, Kier considered that time had already expired by the date of the standstill agreement.

The issue for the court was whether time ran under s.10(4) only once parties have entered into a binding agreement for the payment of compensation, or whether something short of a binding agreement is sufficient to start time running.

The court considered that the most logical way to test Kier’s proposition was to consider what the outcome would be if the parties reached an agreement in principle, but the talks then broke down and did not result in a binding settlement agreement. Under Kier’s construction,once the talks failed, then the case would revert to be determined under s.10(3), i.e. from the date of judgment or award where the matter is litigated or arbitrated. That was not a sensible construction of the Act.

The court considered it important to approach the legislation on the basis that Sections 10(3) and 10(4) are intended to be mutually exclusive. As such, there could only be one trigger date to start time running under s.10: either (i) the date of the judgment or award requiring a payment; or (ii) the date of the agreement to make payment where the issue is compromised. On that analysis, and since there can only be one trigger event, it follows that time cannot start to run where the parties reach an unenforceable agreement as to payment. In such a case, the proceedings remain on foot and time will only start to run under s. 10(4) from the date of the formal binding agreement as to the amount of the compensation payment.

As a sense check, the court concluded that its findings were “obviously right” when the interplay between s.1(4) Civil Liability (Contribution) Act 1978 and s.10(4) Limitation Act 1980 was considered. Since the cause of action for a contribution only arose under the 1978 Act on settlement of the underlying dispute, time could not start to run under the 1980 Act from the date of some earlier, non-binding agreement.

The negotiations during April 2015 were expressly conducted on a “subject to contract” basis and it was common ground that no binding agreement was reached until 29 June 2015. The parties had not intended to be bound until that date. The contribution claim was therefore in time and the limitation defence failed.

Back to the Construction newsletter, July 2018

Contribution claims – a tip for the future

Mon, 30 Jul 2018 12:08:00 +0100

As such, I thought it would be worth recapping a key principle of contribution claims: same damage.

Section 1(1) of the Civil Liability (Contribution) Act 1978 provides that, in to recover a contribution from another party, that party must be liable for the same damage:

“…any person liable in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage (whether jointly with him or otherwise).”

You might think that the term “same damage” is obvious and not worthy of its own blog, let alone judicial ink. But you would be wrong.

Considering situations where the claim is not for the same damage may help illustrate the differences in damage that can arise, and what to look out for:

Different kinds of harm: delay caused by a contractor and an extension of time wrongly given by a contract administrator are not the same damage: Royal Brompton Hospital NHS Trust v Hammond¹.
Physical defects as opposed to financial loss: Birse Construction Ltd v Haiste². In this case, the two (different) types of damage suffered were physical defects in a reservoir and the financial loss of having to construct a second reservoir. Roch LJ summarised his reasoning and conclusion:“The word ‘damage’ in the phrase ‘the same damage’ in section 1(1) does not mean ‘damages’.”
A building contractor who builds a defective building is not liable for the same damage as an insurer. The former was liable for the damage suffered as a result of the defects, whereasthe insurer could only be liable for financial loss under the policy: Bovis Construction Ltd v Commercial Union³.

It is worth noting that one party may be liable for only some of the damage suffered, whilst the other may be responsible for the whole. This part can still be the same damage. And there are many situations where the parties are responsible for the same damage. That said, if your client is facing a contribution claim, my advice would be to check whether it really is for the same damage.

^{1. Royal Brompton Hospital NHS Trust v Hammond [2002] UKHL 14.

2. Birse Construction Ltd v Haiste [1996] 1 WLR 675.

3. Bovis Construction Ltd v Commercial Union Assurance Co Plc [2001] 1 Lloyd’s Rep 416, David Steel J.}

Back to the Construction newsletter, July 2018

Talk isn’t always cheap: oral contracts in the construction industry

Mon, 30 Jul 2018 12:08:00 +0100

Since the Local Democracy Economic Development and Construction Act 2009 removed the requirement for construction contracts to be in writing, an oral construction contract is sufficient for disputes to be governed by the statutory adjudication provisions.

The case of Dacy v IDM originally started as an application by Dacy to enforce the decision of an Adjudicator who decided: (i) that an oral contract existed between Dacy and IDM; and (ii) IDM owed Dacy the sum of £247,250 pursuant to that contract.

Dacy applied, in the usual way, to enforce the Adjudicator’s award by way of summary judgment. IDM resisted enforcement as it alleged there was no contract between Dacy and IDM but instead Dacy had contracted with a third party, who subsequently entered into administration. Accordingly, IDM contended the Adjudicator had no jurisdiction to make his decision.

At the summary judgment hearing the Court held that IDM had a “realistic prospect of succeeding” in its defence that there was no contract between Dacy and IDM. Therefore a one day trial was ordered which, naturally, relied on oral evidence between the parties involved to consider whether an oral contract was agreed.

The Court commented that IDM’s key witness was “very capable of glossing over contractual precision when it suits him” and ultimately preferred the evidence of Dacy’s witnesses. The Court decided a contract was concluded between Dacy and IDM and the Adjudicator’s decision was enforced.

In delivering its judgment the Court made and drew on previous comments about the difficulties with oral evidence commenting that “reliance on recollection alone should not be the sole tool for assessing credibility of witnesses” and “In a case such as this, with the central issue being what was agreed orally at a particular meeting, there are inferences (which is to say common sense conclusions) that can be drawn from certain other matters, not only documents, but also circumstances”.

The case highlights the obvious difficulties that arise when contracts are not concluded in writing and (despite the Court’s efforts) it took 17 months – and one would expect considerable cost – before Dacy was able to enforce the Adjudicator’s decision.

The Court however seemed keen to emphasise the trial could have taken place much earlier and the issue resolved a year before. It also noted that it was only in very rare cases that adjudication enforcement applications will result in trials of issues thus highlighting that disputes (even involving oral contracts) will usually be dealt with speedily.

Back to the Construction newsletter, July 2018

Redbourn Group Ltd v Fairgate Developments Ltd [2018] EWHC 658 (TCC)

Mon, 30 Jul 2018 12:04:00 +0100

The decision highlights the need for consultancy appointments to contain clear termination provisions and reveals the consequences for a consultant in circumstances in which its consultancy agreement contains a discretion, on the part of a developer, to (or not to) proceed.

Facts
The consultant, Redbourn Group Limited (RGL), was appointed development and project manager in relation to the development of land in Wembley. RGL’s appointment included a staged payment-plan. The developer, Fairgate Developments Limited (FDL), terminated the appointment by serving a breach of notice midway through stage 3 of 5. RGL sought damages for breach of contract. Having first found that RGL’s contract had been wrongfully repudiated, the Court had to determine the amount of any damages to award.

RGL claimed that it was entitled to all the fees that would have been payable to it had it carried out all the services under its appointment for all stages of the project, save for a discretionary performance fee. In the alternative, RGL claimed damages for the alleged loss of a chance to earn those fees. Credit was given for costs that it would have incurred in any event.

Decision

Part of RGL’s role was to obtain planning permission for the development. The planning application was subject to approval by FDL. Planning permission had not been obtained by RGL at the time of its dismissal and the Court considered that, even if RGL had not been dismissed, consent would likely not have been given for the proposed scheme.

The Court considered whether, pursuant to the terms of RGL’s appointment, FDL was legally entitled to pull out of the contract or whether it owed a contractual obligation to proceed and, therefore, pay RGL. The Court concluded that the fact that FDL retained discretion (relating to whether to approve an application for planning permission) – albeit not unfettered - indicated that FDL was not contractually obliged to proceed with the scheme. There was, therefore, no guarantee that RGL would be employed, and paid, for every stage.

Further, the Court concluded that the project was unrealistic and commercially unviable on the facts. RGL’s alternative case also failed, with the Judge likening the claim to awarding damages to a wrongfully dismissed employee based on the chance that their employer might have continued their employment longer than obliged to do so.

Ultimately, the TCC found that RGL could only claim the fees payable up to the point that the appointment could have been lawfully terminated. As all fees up to that point had been paid (save for an outstanding sum that FDL had admitted), even though FDL was found to have repudiated the contract, RGL was not entitled to damages.

FDL’s small contractual discretion, not contained within the contractual termination clauses, as to whether to proceed with the development ultimately limited its liability to RGL and saved it from a substantial order to pay damages. Consultants should be aware of the limiting effect these types of clauses can have on their ability to recover lost fees following termination and the need to ensure that their consultancy appointments contain clear termination provisions setting out what fees a developer will be liable for in the event of termination.

Back to the Construction newsletter, July 2018

Network Rail to ban retentions and mandate payment periods to subcontractors

Wed, 20 Jun 2018 11:34:17 +0100

The changes come in the wake of the liquidation of Carillion and the increasing movement (from inside and outside of the industry) that seeks to have cash retentions abolished.

Network Rail generally procures work utilising its own suite of standard form contracts (the NR standard forms) and we are yet to see the promised changes to these terms. However, revisions of the NR forms are expected later this year and it is understood that, when released, they will contain obligations on tier one contractors to pay subcontractors within the specified period and without retention. A process is also expected whereby Network Rail will allow suppliers to alert them directly to any contract that does not meet the requirements.

Obligations upon tier one contractors to pay their suppliers within a particular period are not new. However a significant question is how such obligations are actually enforced by the employer/client, which is clearly important not just for the supply chain but also tier one contractors to ensure all are operating to the same expected standard. In addition to suppliers being able to notify Network Rail directly, Network Rail has said it will be carrying out regular spot-checks on tier one contractors, with non-compliant firms having to explain their positions. As an organisation, Network Rail ranks its contractors in league tables and it remains to be seen if financial performance will form part of those rankings in the future.

Network Rail has also announced that it will be introducing provisions for project bank accounts so that they could be used in projects where deemed suitable and that it will be carrying out periodic financial checks on its supply chain. Stephen Blakey, commercial projects director for Network Rail’s Infrastructure Projects division, told Construction News "we will be checking those suppliers a minimum of once a year, but in some cases there may be quarterly assessments where required".

The news comes in readiness to include the provisions in Network Rail's next spending period, Control Period 6 (CP6), where high value procurements are already underway.

Oral variations can leave you between a Rock and a hard place

Thu, 31 May 2018 11:06:33 +0100

In Rock the Supreme Court held that a 'no oral modification' clause (or NOM clause), is effective to invalidate a variation to a contract made by oral agreement or by conduct. Whilst this ostensibly removes an all-too-common cause of dispute, the practical effects may be significant (particularly in the construction industry but by no means exclusively).

NOM clauses are contained in many construction contracts and are often added to standard forms by way of bespoke amendments (sometimes as a matter of course in the 'boilerplate' section). Standard and bespoke forms often also contain prescriptive provisions for instruction to be issued changing the works/services. They are intended to obviate disputes which may arise from alleged oral variations to a contract, notably when a party embarks on work in the belief they had been instructed to undertake such, only to find that the terms are in dispute or that such an 'agreed' variation was never agreed at all.

The matter of whether an oral variation was formally agreed between the parties formed the basis of the dispute in Rock. Rock Advertising Limited (Rock) had entered into a contractual licence with MWB Business Exchange Centres Limited (MWB) to occupy office space but soon fell into arrears with payment of its licence fee. Rock subsequently proposed a revised schedule of payments to MWB. Following a telephone discussion between the parties Rock treated the revised schedule of payments as accepted. However, MWB later formally rejected the offer and, a month later, locked Rock out of the premises and terminated the licence for non-payment. MWB sued for the arrears and Rock counterclaimed for wrongful exclusion from the premises. The matter turned on the effect of the NOM clause contained in the licence.

Initially, the law on NOM clauses appeared sufficiently certain when Sedley LJ refused leave to appeal in United Bank Limited v Asif [2000] on the ground that it was "incontestably right" that a clause providing that "no oral variation of the written terms could have effect". Over the following years however case law appeared more equivocal and, in 2013, Gloster LJ declined to decide the point in Energy Venture Partners v Malabu Oil and Gas Ltd, stating that he was "incline[d] to the view that such clauses were ineffective". Subsequently, in the 2016 case of Globe Motors Inc v TRW Lucas Varity Electric Steering Ltd Beatson LJ held (albeit obiter) that on the basis of party autonomy, a NOM clause should not prevent a party from later making, in effect, a new contract:

"in principle the fact that the parties' contract contains a [NOM] clause…does not prevent them from later making a new contract varying the contract by an oral agreement or by conduct."

This line was followed by the Court of Appeal decision in Rock who found on the evidence that the telephone discussion between the parties' representatives had constituted not only an oral agreement to revise the schedule of payments but also an agreement to dispense with the NOM clause. The Supreme Court disagreed and has now provided clarity on the effectiveness of NOM clauses.

Lord Sumption determined that the Court of Appeal's interpretation of such a concept was a "fallacy" as it would, in effect, prevent parties from binding themselves as to the manner in which future changes in their legal relations would be achieved:

"Party autonomy operates up to the point when the contract is made, but thereafter only to the extent that the contract allows. Nearly all contracts bind the parties to some course of action, and to that extent restrict their autonomy. The real offence against party autonomy is the suggestion that they cannot bind themselves as to the form of any variation, even if that is what they have agreed. There are many cases in which a particular form of agreement is prescribed by statute: contracts for the sale of land, certain regulated consumer contracts, and so on. There is no principled reason why the parties should not adopt the same principle by agreement."

Lord Sumption went on to address the question of whether the parties must inherently have intended to dispense with the NOM clause by attempting to vary the contract orally:

"What the parties to such a clause have agreed is not that oral variations are forbidden, but that they will be invalid. The mere fact of agreeing to an oral variation is not therefore a contravention of the clause. It is simply the situation to which the clause applies. It is not difficult to record a variation in writing, except perhaps in cases where the variation is so complex that no sensible businessman would do anything else. The natural inference from the parties' failure to observe the formal requirements of a [NOM] clause is not that they intended to dispense with it but that they overlooked it. If, on the other hand, they had it in mind, then they were courting invalidity with their eyes open."

In other words, the Courts endorse that parties are entitled to agree whatever terms they wish (within the boundaries set by common law and statute) at the outset. Thereafter, the parties should follow what they have agreed and inserting a NOM clause has the effect of invalidating any later attempt to vary those terms (including the NOM clause itself) orally.

As justification for his position, Lord Sumption set out three key practical reasons for including such clauses:

to prevent attempts to undermine written agreements by informal means, which may be open to abuse;
to prevent misunderstandings as to whether a variation is intended and the terms of the variation; and
to provide a measure of formality which makes it easier for corporations to police internal rules, restricting who has authority to agree variations.

Nevertheless, as touched upon in the judgment, such a position causes difficulties for a party that carries out work it has been instructed verbally to undertake, only to subsequently find that this does not alter the contractual basis on which it is entitled to be paid. As set out at the outset of this note, despite inclusion of NOM provisions in the construction contracts governing parties' conduct, oral variations are still a common feature of the majority of construction projects.

Whilst Lord Sumption noted that "the safeguard against injustice lies in the various doctrines of estoppel" he declined to explore the circumstances in which such doctrines would be applicable.

It is notable that Lord Briggs provided a lone dissenting (in ratio if not result) judgment in the case and provides his own solution to the conceptual problem faced by NOM clauses serving to limit party autonomy. Though Lord Briggs notes that his differences in reasoning would not have any significant consequences for the application of common law "save perhaps on very unlikely facts" he concludes by stating ominously that Lord Sumption's approach "would involve a clean break with something approaching an international common law consensus, unsupported by any societal or other considerations peculiar to England and Wales".

The impact of the judgment and how adjudicators, and the courts, might interpret arguments over estoppel (which can only be used as a 'shield' and not a 'sword') and unjust enrichment in an apparent brave new world remains to be seen. Whilst Rock ostensibly provides welcome clarification of the law, it may open a Pandora's box of new disputes (or newly framed disputes) in the construction industry if parties fail to alter their conduct accordingly. In the meantime, the advice remains check your contract and comply with the agreed variation procedure. Parties who complain about the other being 'overly contractual' should be reminded of the procedure they have either set or consented to.

A valuer does not owe a duty of care to the directors of a borrower

Wed, 02 May 2018 17:12:52 +0100

In the case of Atique Rehman and Another v Santander UK Plc and Another, the Claimants brought proceedings against both the lender and the valuer. The Claimants had applied to the lender to refinance borrowings in connection with two nursing homes owned by a company of which they were both directors. The lender retained the valuer to provide a market valuation of the nursing homes, in order to assist it in deciding whether to make a loan to the company. Relying in part on the valuation, the lender agreed to lend monies to the company and the Claimants agreed to guarantee the company's repayment obligations as a condition of the lender making the loan.

The company ran into difficulties and eventually defaulted on the loan. The lender sought to recover the loan monies from the Claimants under their guarantee. The Claimants commenced proceedings in which they claimed that the guarantee was unenforceable and sought damages from the valuer for negligence in preparing the valuation report. The lender and the valuer applied for summary judgment on the claims made against them respectively.

Both the lender and the valuer succeeded in having the claims against them dismissed. So far as the claim against the valuer was concerned, the Judge held that the Claimants had no real prospect of establishing that the valuer owed them a duty of care in connection with the valuation report. Accordingly, the Claimants could not sue the valuer for any negligence in preparing the report. The valuer had not been retained by the Claimants or even by the borrower company; rather, they had been retained by the lender and it was to the lender that they owed any duties. The Claimants had only seen the valuation report because the lender had sent them a copy, but this had been done without the knowledge or agreement of the valuer and the Claimants had no real prospect of establishing that the valuer knew that they were likely to rely on the report when signing the guarantee. Further, the report contained a disclaimer which excluded reliance by third parties on it without the valuer's consent, and this was sufficient to negate any duty of care to the Claimants which might otherwise have arisen.

This decision does not create new law but rather is an application of the principles established in previous cases. However, it is a useful reminder of the limitations on the duty of care which valuers owe in similar situations. In most commercial transactions, a valuer who is retained to provide a valuation to a lender is unlikely to owe a duty of care to the borrower, not least because it is reasonable to expect the borrower to obtain its own independent valuation advice, rather than to rely on any advice obtained by the lender. The case also makes clear the importance for valuers of ensuring that they include clauses in their contracts that exclude third party reliance, to ensure that any third party that might come to see and rely on their report cannot bring a claim against them.

Contact (Print And Packaging) Ltd v Travelers Insurance Co Ltd [2018] EWHC 83

Fri, 13 Apr 2018 12:02:02 +0100

This article discusses the recent TCC judgment by HH Stephen Davies in Contact (Print And Packaging) Ltd v Travelers Insurance Co Ltd [2018] EWHC 83 (TCC), specifically with regards to preserving documents for disclosure, which is a key stage in any litigation. Much of the case turns on the particular facts but the Judge made some comments which are of more general interest, in particular in relation to the business interruption aspect of the claim, which largely failed – the insured recovered c£19k against a claim for c£435k. This was in part due to the complete absence of contemporaneous documentary evidence to support the claim, which the Judge said should have been preserved and disclosed.

The reason behind the lack of documents is that the claimant sold its business shortly after serving a Letter of Claim, and without giving appropriate thought to the possibility that more relevant documentation might be required than had already been obtained, in the event that this claim was pursued. On selling the business, the claimant decided, for financial reasons (which the Judge accepted was understandable) not to renew the operating licences for the principal IT software systems. However, importantly, in so doing, the claimant did not take any steps to ensure continued access to the relevant data for the purposes of the claim, whether from the new purchaser (by way of access either to the data or to the hardware from which the data was accessible) or from the suppliers of the relevant software. Whilst the Judge concluded, having considered the evidence, that there was no realistic likelihood that there were documents relevant to liability which existed and which were not, but could have been, disclosed had proper steps been taken, he was less forgiving in relation to those documents necessary to prove the quantum of the business interruption claim, given the onus was on the claimant to prove its case. The judge took the view that, where the claimant might reasonably have been expected to provide more documentation in relation to a particular issue but had not, it should not be given the benefit of the doubt in relation to that issue, in circumstances where it had failed to take proper steps to ensure that relevant electronic information was preserved for the purposes of this claim.

This case serves as a useful reminder of the importance of preserving your documents and/or access to documents, particularly in circumstances where a claim has arisen or could arise. It is important to note that the Civil Procedure Rules define “documents” very broadly as meaning “anything in which information of any description is recorded”. In addition to hard copy, paper documents (such as correspondence, agreements/contracts, handwritten notes, memos etc), it extends to electronic documents, including e-mail and other electronic communications, word processed documents and databases. In addition to documents that are readily accessible from computer systems and other electronic devices and media (such as mobile phones and memory sticks), the definition covers those documents that are stored on servers and back-up systems and electronic documents that have been “deleted”. It also extends to additional information stored and associated with electronic documents known as metadata. If you or your relevant IT personnel are in any doubt as to which documents need to be preserved and/or how to go about preserving potentially disclosable documents, please do not hesitate to contact us.

Back to the Construction newsletter, April 2018

DPM Property Services Ltd v Emerson Crane Hire Ltd

Fri, 13 Apr 2018 12:02:02 +0100

The Facts

The work in question was carried out at two properties: the Respondent's yard; and a residential property owned by the director of the Respondent's company. The Respondent counterclaimed for defects, pleading losses of £4,895 plus VAT for the residential property and £160,175 plus VAT for the Respondent's yard.

At the pre-trial review, the judge allowed the Respondent to rely on a new liability expert, but deleted the parts of the report to which the Appellant objected. The Respondent was also permitted to rely on a new quantum expert, which consequently allowed them to pursue counterclaims for losses totalling £332,671.34. However, the judge permitted this on the basis that this would be restricted to the entitlement to the originally pleaded sum of £160,175 plus VAT. The Appellant appealed.

The appeal was brought on two bases:

1a) that the judge had wrongly concluded that the losses in the expert report had been particularised in the Scott Schedule of defects;

1b) that the judge failed to give effect to his earlier order by which the Respondent had been debarred from adducing evidence at trial on any issue that was not particularised in the Scott Schedule;

2) the decision to allow the Respondent to advance at trial a counterclaim for losses totalling £332,671.34 and requiring the Appellant to meet those claims despite the fact that the pleaded value was only £160,175 constituted a serious procedural irregularity and was unjust within the meaning of CPR r. 52.21(3)(a) and (b).

Decision

Delay: it was held that the judge did not take into account the critical issues of delay.Had he done so, he would have refused to allow the Respondent to rely on the new expert report.
Debarring Order: the Appellant was correct to regard the debarring order as extending to quantum as well as the defects themselves.
Losses Particularised: it was considered that, having refused the Respondent's attempt in January 2017 to rely on a report from the new expert that went way beyond the Scott Schedule, the judge should have adopted precisely the same approach at the PTR in October 2017.
The so-Called Cap: it was held that the judge was wrong in principle to regard the lump sum figure in the original counterclaim as a cap.

Conclusion

The judge gave the appellant permission to appeal and the Respondent does not have permission to rely on the new expert report.

Back to the Construction newsletter, April 2018

ICE Architects Ltd v Empowering People Inspiring Communities [2018] EWHC 281 (QB)

Fri, 13 Apr 2018 12:02:02 +0100

The appellant architect, ICE, agreed to provide design services to EPIC for a social housing scheme in Stoke-on-Trent, and was appointed by a letter dated 10 July 2007. Under the heading "Basis of Payment", that letter stated that ICE would invoice EPIC on a monthly basis, and that EPIC would "endeavour to make payment within 30 days of receipt (unless otherwise stated)".

ICE issued an invoice to EPIC on 23 April 2009 for £42,375 plus VAT, which EPIC disputed. Following adjudication, ICE was awarded £24,033.85. ICE commenced Court proceedings on 21 May 2015 for the balance of the invoice. At first instance, it was found that the claim was statute barred, pursuant to section 5 of the Act, as proceedings had been commenced more than 6 years after the cause of action had accrued, which was found to be the date of performance of the services which were the subject of the invoice.

On appeal, the case turned on a single issue: whether ICE's cause of action accrued on (i) the date on which the work was completed, which was as late as December 2008, or (ii) 30 days after receipt of the invoice, by agreement between the parties, given the wording included in the letter.

The parties agreed that the default position was that a service provider is entitled to be paid once work has been completed, and so a cause of action for payment arises at that time. In this case, that would mean the claim was statute barred.

It is, however, possible for parties to reach a different agreement, and ICE argued that the default position had been overridden by the wording included in the 10 July 2017 letter, such that the cause of action did not accrue until 30 days after receipt of the invoice. The Judge disagreed, and did not accept that the "30 day" term in the letter meant that entitlement to payment arose only 30 days after receipt of the invoice. This provision was only relevant to the process of billing and payment, and not to the limitation position. While confirming that the time when a cause of action will usually accrue in such cases is the completion of services, the Judge left no doubt that clear words are required if this default position is to be displaced.

Back to the Construction newsletter, April 2018

Rise of the regulators

Fri, 13 Apr 2018 12:02:02 +0100

There is no clear reason for the increase. The majority originate from former clients who are dissatisfied with the service that they have received. Often the complaints appear to be testing the water, to see whether it is worthwhile pursuing civil proceedings. This has clear advantages for the complainant as they are able to test the strength of their claim and obtain information without the risk of an adverse costs award. If the regulator does decide that the professional has acted in breach of their relevant code of conduct, this is likely to assist them in any subsequent claim, and make it diffcult for the professional to defend a claim. On other occasions, the complainant appears to have suffered minimal financial loss and the complaints are made simply to “punish” the professional.

On receipt of a complaint, the Regulator will carry out an investigation into the factual background to determine whether it has any merit or reveals any potential breaches of professional obligations. It can then choose whether to take any further action. It may close its file, issue advice to the professional regarding their conduct or refer the matter to a disciplinary panel hearing.

With complaints to the RICS Disciplinary Panel, the Royal Institute of British Architects or the Architects Registration Board, the disciplinary hearing stage is a process akin to a trial. It is formal and adversarial. Should the panel conclude following a hearing that a sanction is appropriate, they have wide-ranging powers, from issuing a formal written reprimand through to deregistration from the relevant professional body. In effect, they have the power to end a professional’s career.

We would recommend that any professional who is subject to an investigation (or disciplinary hearing) by their regulator to forward the letter to their broker at the earliest opportunity - preferably on receipt of the first letter informing them a complaint has been made. A decision can then be made whether it should be notified under any insurance policy and consideration given to what cover may be available to assist with the cost of preparing a response.

There is also clear benefit to be gained from obtaining legal advice at an early stage, whether or not this is covered by an insurance policy. This ensures that an appropriate response is put forward, bearing in mind the potential risk to the professional’s career outlined above. It can represent a significant cost-saving in terms of both management time and legal costs if the matter can be resolved at an early stage. It should also ensure that important deadlines are not missed, which may result in lost opportunities to submit information.

Whilst regulatory investigations do not offer financial compensation for a complainant, and therefore there is no risk of insurers paying out a large sum for damages, a poor outcome can have dire consequences for a professional’s career and it is therefore important that all possible steps are taken from the outset to ensure the professional receives a fair hearing.

Back to the Construction newsletter, April 2018

Risky business: Part 36 offers and their consequences

Fri, 13 Apr 2018 12:02:02 +0100

In JMX (a child by his mother & litigation friend, FMX) v Norfolk & Norwich Hospitals NHS Foundation Trust [2018] EWHC, he considered whether an offer to accept 90% of the sum claimed constituted a "genuine attempt to settle" the dispute for Part 36 purposes. In Gemma Ballard v Sussex Partnership NHS Foundation Trust (2018) EWCH 320, he was asked to assess the costs consequences of a withdrawn Part 36 offer.

JMX (a child by his mother & litigation friend, FMX) v Norfolk & Norwich Hospitals NHS Foundation Trust [2018] EWHC

The Claimant made a Part 36 of 90% of his claim shortly before trial. The offer was not accepted. At trial, the Court found in favour of the Claimant and was asked to consider whether the costs consequences of the Claimant's Part 36 should bite.

The Defendant maintained that the offer was not a genuine attempt to settle the claim because it did not reflect a realistic assessment of the risks of litigation – a factor considered by the Court, under CPR 37.17(5), when deciding whether it would be unjust to enforce the consequences of a Part 36. The Defendant argued also that the letter of offer did not explain why only a 10% discount was being offered. Mr Justice Foskett did not accept the Defendant's arguments.

Mr Justice Foskett considered an offer to accept 90% was reflective of circumstances where the Claimant's legal representative's assessed the Claimant's case to be very strong but were prepared to offer a small discount to "[…] secure absolute certainty of obtaining substantial compensation" (paragraph 15). The Judge acknowledged that this was a high-value dispute such that the offer of a 10% discount was an opportunity for the Defendant to achieve more than a "token" saving on the claim. Moreover, the costs of five-day trial were significant and settlement even a day before the trial started would have represented a further substantial savings for the Defendant. The Court found that the Claimant's offer was a genuine attempt to settle the claim and applied the normal Part 36 costs consequences. However, the costs outcome for a lower value claim, with less significant costs, might have been different.

Gemma Ballard v Sussex Partnership NHS Foundation Trust (2018) EWCH 320

Over the course of this personal injury claim, various settlement offers had been made. The Defendant issued three significant letters of offer:

On 25 January 2016, the Defendant made a Part 36 offer of £50,000 ("the First Offer")
On 8 February 2017, the Defendant served a letter, stating that the First Offer was withdrawn
On 8 February 2017, the Defendant made a second Part 36 offer of £30,000 ("the Second Offer") and confirmed that all previous offers had been withdrawn.

At the trial, on 2 and 3 March 2017, the Claimant was awarded damages of approximately £23,300. There was no dispute that the Claimant should be liable for the Defendant’s costs following the expiry of the Second Offer (essentially, the costs of the trial). However, at first instance, the Court ordered the Claimant pay the Defendant’s costs from the expiry of the First Offer until the commencement of the trial. On appeal, the Court was asked to reconsider which party was liable for costs for the period between the expiry of the First Offer, which had been withdrawn, and the expiry of the Second Offer.

The Claimant submitted that the Second Offer made it clear that, if the judgment obtained was not more advantageous than the Second Offer, the Defendant would seek an order that the Claimant should pay the Defendant’s costs from 1 March 2017. The Defendant argued that, although the First Offer had been withdrawn, the Court had discretion to have regard for the First Offer and make a costs order, which reflected that, had the First Offer been accepted, costs would had been saved by both parties.

Mr Justice Foskett did not accept the Defendant's arguments. The appeal was allowed and the Defendant was ordered to pay the Claimant's costs up to and including 1 March 2017, whilst the Defendant was entitled to its costs thereafter. In his decision, Mr Justice Foskett stated that the Defendant could not escape the precise terms of the Second Offer, which stated that First Offer had been withdrawn. Had the Defendant amended the First Offer, rather than withdrawing it, it would have benefitted from the costs consequences attached to that offer.

These cases serve as an important reminder of the importance of the timing, wording and level of any Part 36 offers made or received and the costs consequences of these offers.

Back to the Construction newsletter, April 2018

Smash and Grab? Think Twice

Fri, 13 Apr 2018 12:02:02 +0100

However, the well-publicised judgment in Grove Developments Limited v S&T(UK) Limited [2018] EWHC 123 (TCC) might give potential smash'n'grabbers pause for thought: is it worth adopting that tactic if you might have to give the loot straight back?

A typical Smash and Grab adjudication goes as follows: the contractor submits an interim application and, for whatever reason, the Employer fails to serve a valid Payment Notice or a valid Pay Less Notice. The legislation provides that the Contractor is now entitled to the entire sum for which he applied. If the Employer doesn't pay, the Contractor commences adjudication on this technicality, and he wins: he is entitled to the lot. In Grove v S&T(UK) Limited, which concerned the final interim application on the project, the sum in question was £14m.

In previous cases, the TCC had found that a further effect of the legislation was that, in the absence of valid notices, the Employer was deemed to have "agreed" that the amount in the application was payable, irrespective of whether it was clear that there was no way he had actually agreed. As a result, the Employer could not commence an adjudication or legal proceedings claiming that the true amount payable was less that he had been required to pay as a result of failing to issue the correct notices: all he could do was correct the position in subsequent interim applications and/or, ultimately, in the Final Account.

That wasn't necessarily great for the Employer, though: as a project is reaching a conclusion, there are not many opportunities to set the position straight. In addition, many construction contracts do not contain any provision for negative interim payments, and the amount an Employer could simply withhold might be entirely insufficient to recoup the money he has been forced to pay out. Often, as in Grove, the adjudication concerns the last interim application, meaning that the final account is all that is left, and that might take months to resolve.

Those problems ought to be a thing of the past. In good news for paying parties, Mr Justice Coulson decided the question differently in Grove. He said:

"…the underlying issue: can an employer, whose payment notice or pay less notice is deficient or non-existent, pay the contractor the sum stated as due in the contractor's interim application and then seek, in a second adjudication, to dispute that the sum paid was the 'true' value of the works for which the contractor has claimed? In my view, on the application of first principles, there are six separate reasons why the answer to that question is Yes."

He then went on to explain his reasoning in extensive detail. The full judgment can be found here.

Grove is understood to be Mr Justice Coulson's last TCC judgment before he moves up to the Court of Appeal. He said that he found the previous TCC analysis (the deemed agreement described above) to be "erroneous and/or incomplete".

Unless they have reason to believe that the Employer won't have the stomach for a further adjudication, or that, for any reason, a second adjudication will be so delayed as to make it worthwhile having the money in the meantime, Contractors faced with the opportunity to smash and grab might now want to think twice.

Back to the Construction newsletter, April 2018

The collapse of Carillion: The risks and implications for insurers

Fri, 13 Apr 2018 12:02:02 +0100

The company employs 20,000 people in the UK and 43,000 people worldwide. It is thought that some 30,000 companies may be affected by the liquidation.

Carillion owed in the region of £2bn to its 30,000 suppliers, sub-contractors and short term creditors. UHY Hacker Young predict that creditors can expect to receive less than 1p for every £1, with many receiving nothing at all due to the hierarchy of creditors.

Following the collapse, Insurers have said that they will pay out more than £30m to businesses owed money by Carillion. Sums from £5,000 to several millions will be paid to firms who had trade credit policies to protect against bad debts.

A significant insolvency, such as Carillion, can trigger a domino effect, as a lack of payment travels down the supply chain. With this in mind, the key areas of exposure that could arise and impact insurers are summarised below.

Risk of further administrations/liquidations as Carillion fail to pay their subcontractors.
Employers may put more emphasis on suing their consultants for alleged failures to warn, inspect or review on the basis that they won’t get anything back from the contractor that made the error.
Limitation issues – where a company goes into liquidation time stops running for limitation purposes.
Where the limit of indemnity is not suffcient to cover the claim, there could be issues about whether Insurers are defending for their own purposes, rather than the Insureds – see case of Chapman v Christopher [1998] 1 WLR 12.
Policy coverage issues: in particular, was the error design or workmanship; what is the impact of an insolvency exclusion?
Attempts to bring other types of claims: D&O claims, third party claims, Contractors All Risk claims, use of performance bonds, use of project specific indemnity policies.
Delay claims are likely to increase.

As more becomes known about Carillion’s collapse and its impact on the market, it will be interesting to follow how both the construction and insurance industry will react and respond.

Back to the Construction newsletter, April 2018

New(ly reiterated) grounds for stay on enforcement of an adjudication decision

Thu, 05 Apr 2018 12:14:56 +0100

The recent judgment in Gosvenor London Ltd v Aygun Aluminium Ltd [2018] EWHC 227 (TCC) sets out an additional circumstance for a stay of enforcement on a summary judgment of an adjudicator's decision, extending the principles established in Wimbledon Construction Company 2000 Ltd v Derek Vago [2005] EWHC 1086 (TCC).

Facts

Aygun Aluminium Ltd (Aygun) was a sub-contractor for a hotel project in Southampton. It sub-contracted out parts of its scope to Gosvenor London Ltd (Gosvenor). The parties found themselves in a dispute which led to an adjudication and an award in favour of Gosvenor.

Gosvenor attempted to enforce the award by summary judgment which Aygun (i) resisted on the grounds of fraud and (ii) asked to be stayed due to, amongst other reasons, Gosvenor's (lack of) financial viability. The former failed with the judge finding that the defence and the evidence underpinning it should have been raised at adjudication.

That left the financial viability argument, which centred on apparent discrepancies found in the accounts for Gosvenor and the risk that the decision could not subsequently be challenged at court as the claimant would dissipate the adjudication sum awarded. The 2016 accounts showed both debtors and current assets at negative £14,650 and £14,522 respectively. However, the 2017 accounts showed the debtors figure for the same 2016 year (the 2017 accounts including the earlier year figures for comparison purposes) at £622,644 and creditors at negative £581,290.

During the hearing Gosvenor were asked directly to address the discrepancy. They explained that the updated 2016 accounts had been lodged with Companies House but did not show up on the filing history at Companies House as the update had been sent by post and not electronically. Fraser J "wholly rejected" Gosvenor's explanation, which was derided for "stretching credulity" and being "so obviously wrong, that had the matter not been so serious, it would have been verging on the comical".

Decision

The provisions governing a stay of execution of a judgment are set out in CPR Part 83.7(4) and require "special circumstances which render it inexpedient to enforce the judgment". These "special circumstances" for adjudications are set out in Wimbledon as follows:

"Adjudication (whether pursuant to the 1996 Act or the consequential amendments to the standard forms of building and engineering contracts) is designed to be a quick and inexpensive method of arriving at a temporary result in a construction dispute.
In consequence, adjudicators’ decisions are intended to be enforced summarily and the claimant (being the successful party in the adjudication) should not generally be kept out of its money.
In an application to stay the execution of summary judgment arising out of an Adjudicator’s decision, the Court must exercise its discretion under Order 47 with considerations a) and b) firmly in mind.
The probable inability of the claimant to repay the judgment sum (awarded by the Adjudicator and enforced by way of summary judgment) at the end of the substantive trial, or arbitration hearing, may constitute special circumstances within the meaning of Order 47 rule 1(1)(a) rendering it appropriate to grant a stay.
If the claimant is in insolvent liquidation, or there is no dispute on the evidence that the claimant is insolvent, then a stay of execution will usually be granted.
Even if the evidence of the claimant’s present financial position suggested that it is probable that it would be unable to repay the judgment sum when it fell due, that would not usually justify the grant of a stay if:
1. the claimant’s financial position is the same or similar to its financial position at the time that the relevant contract was made; or
2. The claimant’s financial position is due, either wholly, or in significant part, to the defendant’s failure to pay those sums which were awarded by the adjudicator.”

Fraser J extended the principles in Wimbledon by adding the following additional limb:

g. "If the evidence demonstrates that there is a real risk that any judgment would go unsatisfied by reason of the claimant organising its financial affairs with the purpose of dissipating or disposing of the adjudication sum so that it would not be available to be repaid, then this would also justify the grant of a stay."

Fraser J also set out four important considerations when considering limb (g):

The principle will only apply in "a very small number of cases, and in exceptional factual circumstances";
A high test will be applied to decide whether evidence reaches the necessary standard which will broadly be the same as the level of evidence needed to justify a Freezing Order (the Mareva test);
The principle is not designed to prevent claimants from dealing with the adjudication sum in the ordinary course of business; and
The evidence served to enforce the adjudicator's decision at summary judgment is important.

In summary, following an adjudication decision, if there is a real risk that the decision cannot be challenged in court because the claimant may dissipate the adjudication sum, a stay for the enforcement of the decision may be granted. However, this will need to follow a strict evidential test and will only be available in exception circumstances.

Comment

This new (or newly reiterated) limb will likely only have limited application but is useful clarification of the law surrounding enforcement which contractors, in particular, ought to be aware of.

As has been emphasised in recent months, the construction industry works on tight margins and the risk of insolvency, particularly for sub-contractors, is high. However, Fraser J's considered opinion ought not to prevent construction companies from regular reorganisations or other such dealings with the adjudication sum, whilst nonetheless clarifying the options available if there is a risk that the adjudication sum paid out to a party would be dissipated or disposed of so that any future judgment against it would go unsatisfied.

Further, the evidential requirements of the new limb are the same as that of a Freezing Order, which might also provide an effective mechanism to prevent the abuse of this principle. Notably in Gosvenor, Mr Justice Fraser specifically rejected Gosvenor's submissions that the appropriate course was for Aygun to be required to pay the judgment sum and immediately apply for a Freezing Injunction.

Ultimately, the principle should help to combat fraudulent construction companies from abusing the adjudication process.

Smashing 'Smash and Grab' – Coulson J delivers significant blow to smash and grab tactic

Thu, 01 Mar 2018 14:14:52 Z

The Case

Grove Developments concerned the construction of a new 613 bedroom Premier Inn hotel at Heathrow Terminal 4, in which the claimant employer, Grove Developments Limited (Grove), entered into an amended 2011 JCT Design and Build Contract. contract with the defendant contractor, S&T (UK) Limited (S&T). The project suffered from significant delay and was subject to three separate adjudications, the third deciding that Grove's pay less notice was invalid. As a result S&T claimed to be entitled to be paid in excess of £14 million under the relevant interim application, No. 22.

CPR Part 8 proceedings followed to address a number of issues arising from the adjudication. Of relevance to 'smash and grab' tactics was Issue C, being "whether in principle, at this stage, Grove is entitled to commence a second adjudication seeking a decision as to the 'true' value of interim application 22".

'Smash and Grab' under Seevic

The seminal case underpinning 'smash and grab' is (or at least was) the decision of Edwards-Stuart J in ISG Construction Ltd v Seevic College [2014]. Though Fraser J had noted in Imperial Chemical Industries Limited v Merit Merrell Technology Limited [2017] that recent authorities cast "real doubt" on the logic underpinning Seevic, it continued to provide authority for the proliferation of 'smash and grab' adjudications, which had become an important tactic for contractors and sub-contractors.

In Seevic Edwards-Stuart J held that an adjudicator could not determine the value of an interim application which had previously been found to be payable in a prior adjudication, as a result of the employer's failure to serve a pay less notice:

"…if the employer fails to serve any notices in time it must be taken to be agreeing the value stated in the application, right or wrong. In my judgment, therefore, in that situation the first adjudicator must be in principle taken to have decided the question of the value of the work carried out by the contractor for the purposes of the interim application in question."

Edwards-Stuart J saw a "fundamental difference" between the payment obligations arising on interim applications and those arising at the final account stage where the valuation could be contested in the absence of a pay less notice.

Justice Coulson's Decision

Coulson J's approach applied 'first principles' to the case law at hand, keeping in mind the simplicity of the underlying issue, which he determined to be as follows:

"can an employer, whose payment notice or pay less notice is deficient or non-existent, pay the contractor the sum stated as due in the contractor's interim application and then seek, in a second adjudication, to dispute that the sum paid was the 'true' value of the works for which the contractor has claimed?"

Coulson J determined there to be six separate reasons why the answer is to the question is 'Yes':

Firstly, Coulson J invoked the Court of Appeal case of Henry Boot Construction Limited v Alstom Combined Cycles Limited [2005], holding it to be:

"authority for the proposition that the court can decide the 'true' value of any certificate, notice or application and that, as part of that process, it has inherent power to open up, review and revise any existing certificates, notices or applications."

Secondly, Coulson J drew support from the statutory regime governing payments in the construction industry, noting that under s.108 of the 1996 'Construction' Act and paragraph 20 of the 'Scheme' there is no limitation on the nature, scope and extent of the dispute which either side can refer to an adjudicator.

Thirdly, in view of what Coulson J determined to be the underlying issue, he noted that the dispute which the employer would wish to raise in the second adjudication is a different dispute to that which was determined in the first.

Fourthly, Coulson J looked to the words of the contract, which expressly differentiate between "the sum due" (the result of the contractual mechanism designed to calculate the contractor's precise entitlement, the 'true valuation') and "the sum stated as due" (the sum due in the absence of a payment or payless notice).

Fifthly, Coulson J determined that a second adjudication to assess the true value of an application should be permitted on the basis of equality and fairness. If a contractor can launch an immediate adjudication on the value of a particular application, why should an employer be precluded from doing so, in the absence of any contrary wording in the 'Construction' Act, the Scheme or the contract at hand.

Finally, Coulson J took issue with the "fundamental difference" in payment obligations noted in Seevic, assessing them against the statutory payment scheme and the provisions under the JCT and concluding that "there is no difference between the payment rights and obligations of the parties in respect of interim payments, and those arising in respect of the final payment".

Conclusion

Coulson J's TCC swansong is likely to have significant ramifications for the construction industry and, in particular, that he disagrees with reasoning of Edwards-Stuart J in Seevic on the basis of his interpretation of Henry Boot and other CoA authorities carries substantial weight. As a consequence, the tactical benefits for contractors in pursuing 'smash and grab' adjudications would appear to have been substantially undermined by Coulson J's judgment that employers are not prohibited from commencing counter adjudications for determination of the value of interim applications even where there has been no valid pay less notice.

It is important to note that the contract in Grove Developments was an amended 2011 JCT Design and Build Contract. For interim applications, unamended JCT contracts do not generally incorporate a mechanism for payments from the contractor to the employer in the event of a negative valuation. Therefore, in circumstances where a payment has been made to a contractor pursuant to an interim application which amounts to an overpayment in excess of the 'true' value of the works, a right to commence adjudication proceedings for the determination of the true value may not provide the practical benefit if a repayment sought by the employer.

Equitix ESI CHP (Wrexham) Limited v Bester Generacion UK Limited: Judicial guidance on the applicability of the HGCRA to a dispute under a power generation contract

Mon, 19 Feb 2018 16:58:25 Z

The Project progressed slowly and, as a result, Equitix brought two adjudications against Bester. The first related to Bester's entitlement to an extension of time (the Adjudicator found Bester was not entitled to one) and the second concerned the validity of Equitix's termination of the contract and the accuracy of its interim account - Equitix sought to recover £11.5m from Bester; the Adjudicator ultimately decided Equitix was entitled to £9.8m.

Equitix then sought to enforce the Adjudicator's second decision with Bester resisting enforcement on the basis that the contract included works which were expressly excluded from the Housing Grants (Construction and Regeneration) Act 1996 (the Act), in that they were not construction operations and therefore the Adjudicator had no jurisdiction. If Bester was correct, there was a connected point for the Court to consider as to whether Bester properly reserved its right to argue the jurisdiction point.

The Act

It is worth revisiting the Act to fully understand Bester's claims of lack of jurisdiction. In order to benefit from the statutory provisions relating to adjudication and payment, a contract needs to be a "construction contract". A construction contract is defined in section 104 of the Act as an agreement relating to "construction operations". Section 104(5) adds that where an agreement relates to construction operations and other matters, the Act applies only so far as it relates to construction operations.

Section 105(1) of the Act then provides a wide range of works which are deemed to be construction operations whilst section 105(2) identifies operations which are specifically excluded from the Act. Works which fall within section 105(2) include the assembly, installation or demolition of plant or machinery, or erection or demolition of steelwork for the purposes of supporting or providing access to plant or machinery, on a site where the primary activity is power generation. It was Bester's submission that the Project fell into this category and accordingly the Adjudicator had no jurisdiction to decide on the dispute.

The Decision

Applying the judgments from North Midland v A E & E Lentjes and Cleveland Bridge (UK) Limited v Whessoe-Volker Stevin Joint Venture, Coulson J concluded that the Adjudicator had jurisdiction. Section 104(5) of the Act makes it clear that only that part of the agreement which relates to construction operations will benefit from the rights and obligations relating adjudication and therefore what matters for the purposes of jurisdiction is whether or not some part of the dispute referred to the Adjudicator related to or arose out of excluded operations (which is to be narrowly defined).

The works undertaken so far in the Project were not excluded operations. At the point of termination, no excavation on site had yet been taken place, and no plant, machinery or steelwork had been assembled, installed or erected on site. The works undertaken (which included the preparation of bonds and business plans) were preliminary and ancillary works and it would be wrong in principle to say that such preparatory arrangements are excluded operations. Such works are often preparatory steps prior to a major construction contract and "it would make a nonsense of the Act" if those works became excluded operations.

Whilst somewhat academic, on the second issue, Coulson J found that Bester had not validly challenged the Adjudicator's jurisdiction. Bester tried to argue that a letter submitted during the first adjudication was a general reservation of its position on jurisdiction but Coulson J disagreed, noting that it addressed a very specific point. Bester had not submitted any reservations (either general or specific) in the second adjudication and could not now raise such reservations during enforcement proceedings.

However, Coulson J did order a partial stay of execution. As an SPV, there was a real risk that Equitix would be wound up before Bester has an opportunity to properly challenge the interim account, especially considering that Equitix no longer had a purpose and had been "much too economical with the information relating to its financial position". Coulson J therefore ordered that only £4.5m would be paid to Equitix with a further £1m to be paid to Court until further order.

Commentary

When deciding whether an adjudicator has jurisdiction, it is not the overall scope of the contract that needs to be looked at, but the underlying works to the dispute actually referred to adjudication. A contract for the assembly and installation of plant and machinery at a site where the primary purpose is power generation, for example, will not be excluded in its entirety from the Act. The list of excluded operations in section 105(2) of the Act will be construed narrowly, so that whilst the overall scope may relate to an excluded operation, only specific works will fall under the exclusion, rather than the associated preliminary works needed for the operation. This judgment confirms the narrow approach taken in previous cases addressing the same issue.

This case also stresses the importance of properly reserving a party's position as to jurisdiction. Even where there are similar and consecutive adjudications, a party who wants to do so must reserve its position as to jurisdiction in each successive adjudication, because each is different and the limits of the adjudicators' jurisdiction in each are also different. A party must clearly and promptly set out its reservations as to jurisdiction, even if it is a general reservation.

RICS Conflict Avoidance Pledge

Mon, 12 Feb 2018 11:21:02 Z

The CAC is made up of a number of leading construction and engineering bodies including:

Royal Institution of Chartered Surveyors
Institution of Civil Engineers
International Chamber of Commerce
Royal Institute of British Architects
Chartered Institute of Arbitrators
Dispute Resolution Board Foundation
Chartered Institution of Civil Engineering Surveyors
Transport for London and Network Rail

RICS is encouraging parties involved in the land, property and construction industries to sign up to the "Conflict Avoidance Pledge". This pledge is wholly voluntary but signifies a party's willingness to pro-actively seek to avoid conflict by identifying potential disputes early, promoting collaborative working and utilising conflict avoidance mechanisms. The CAC hopes to promote a greater understanding and use of conflict avoidance to resolve disagreements early and avoid damaging business relationships or entering into expensive and time consuming formal dispute resolution.

As at 5 February 2018, 68 companies had signed up to the Conflict Avoidance Pledge including some of the industry's biggest names such as Amey, Balfour Beatty Rail, Morgan Sindall, Mott MacDonald, Skanska, VolkerFitzpatrick and Volker Rail. It is clear that this Pledge will only work in practice if the majority of clients and their supply chains sign up to it. Nonetheless it is promising that these leading companies have already shown their support.

Methods which can assist with early identification of issues include "RADAR", a horizon scanning service which bridges the gap between forensic data and stakeholder perceptions. Parties to a contract are able to input anonymised responses to questionnaires and air grievances. As the data is anonymised it is likely that issues that wouldn't be brought up in an open meeting would be raised and concerns that the parties have addressed early on.

Secondly RICS endorses the DRS Conflict Avoidance Panel which encourages communication and cooperation to avoid escalation. The process provides fully reasoned, independent recommendations for settlement, which whilst not binding, a party must provide a written explanation if they do not wish to follow it.

Will the Conflict Avoidance Pledge make a difference? The cynic would argue that many have tried similar approaches in the past so will this be different? For the Pledge to be effective all parties need to be cooperative but it is likely to be in any party's best interests to resolve a disagreement amicably and without recourse to the courts. Whilst it is unlikely that the Pledge can prevent all disagreements from escalating to formal resolution, it should help to provide a framework for additional cooperation to resolve comparatively small disputes which could not effectively be resolved through arbitration or litigation. The impact of the Pledge waits to be seen.

Retrospective and prospective delay analyses – do they provide the same results?

Fri, 26 Jan 2018 16:05:18 Z

Background

The Claimant ("Fluor") contracted to engineer, procure and construct the foundations and infrastructure for 140 wind turbine generators to be installed at the Greater Gabbard wind farm. Fluor engaged the Defendant ("SZH") to provide the steel piles ("SPs") and transition pieces ("TPs"); the quality of these SPs and TPs was queried which contributed to considerable delay to the project.

The structural integrity of the SPs was questioned when testing highlighted that they were subject to transverse cracking. The judge accepted that the Employer would reasonably require that the cracks were either remedied or an Engineering Critical Assessment ("ECA") obtained stating that the structural integrity of the SPs was not adversely affected. It was later determined that the cracking did not impair structural integrity and the SPs were good for their 25 year required design life.

To complicate matters other defects became apparent which also contributed to delay:

the SPs were "out of roundness" meaning that the diameter across some cross sections of a number of the SPs was too wide for the hired hammer to drive them into the seabed; and
some transformers to be installed in the TPs were defective.

Delay over the summer months of 2009 meant that installation would have to take place during the autumn when there was a higher chance that adverse weather would cause additional delays. The judge held that for each installation day lost in July and August, 1.23 days should be added on in respect of time lost through bad weather between October and January.

For various reasons the ship intended to install the TPs, the Javelin, could not operate over the winter months. When the contract period ended in September, it could not be used again until March or April the following year. As by or during the first week in August Fluor had recognised that there was no prospect of installing any TPs in the near future, Fluor procured an alternative vessel, the Leviathan to install the TPs. However, the Leviathan was not as specialised for the process and would take 3.5 days to install each TP rather than the Javelin's 1 day per TP.

Fluor sued SZH for damages and was successful in establishing liability last year. The present decision concerned quantum with a significant proportion of the quantum concerning time implications. Part of the challenge for the courts involved consideration of whether a prospective or retrospective approach to delay analysis should be adopted.

Retrospective or prospective?

When considering the calculation of delay, departing from previous dicta, the judge stated that prospective analysis (i.e. contemporaneous assessment) will not necessarily produce the same answer as an analysis carried out retrospectively (i.e. hindsight assessment). He went on to find that a prospective exercise was appropriate when considering extensions of time but that some form of retrospective analysis was required on the facts of this case.

Practically, contractors should make their applications at the earliest opportunity and push for their entitlement to decided (on a prospective basis). The reality and window afforded in most contracts for both notifying and responding to extension of time applications means that some form of retrospective analysis is almost always undertaken.

Other issues

Aside from delay analysis, the quantum judgment also had to deal with the fact that the claim had been partially settled and therefore some of the potential award to Fluor may have been waived. Whether costs had been waived depended on whether they stemmed from the issue of Non Conformance Reports ("NCRs").

The NCRs didn't explicitly require Fluor to refrain from extending the contract period of the Javelin, however the practical effect of the NCRs meant that it would not be possible to install any TPs until much later than originally anticipated. Although, the cracking in the SPs was not the only defect delaying matters during the summer of 2009 the judge considered that the decision not to extend the hire of the Javelin was a direct result of the issue of the NCRs on SP cracking and therefore the ability to recover costs of this had been waived.

A further interesting point raised was the purpose for which documents are created in relation to privilege. In arbitration, Fluor had contended that the ECAs had been created for use in litigation and therefore privilege attached. However, in court Fluor attempted to argue that the primary reason for obtaining the ECA was to support their position on defects and protect their reputation and the costs of the same should be recoverable as damages. The judge considered that Fluor couldn't have it all ways; having already argued that the primary purpose of the ECA was for use in litigation, supporting their contractual position and protecting their reputation must be a subsidiary reason. As such, the judge considered that only 40% of the cost was recoverable costs on the facts.

Incorrect Ownership Certificates: A Cautionary Tale

Fri, 19 Jan 2018 11:30:00 Z

Whilst its background is not entirely straightforward, this case concerned a planning application for the construction of a flat above an existing six-storey apartment block. At least one of the application plans (rightly or wrongly) included part of one of the existing flats, which was leased on a 999 year lease. The application was made in the name of the freehold owner's agent and stated that the applicant was the only owner of the application site. As such, no notification of the application was given to the affected leaseholder, either by the applicant or the planning authority. The leaseholder did not spot the site notice and did not become aware of the application until after the consent had been granted. He subsequently challenged the grant of consent based (in part) on the error in the ownership certificate, which he said denied him a chance to make representations on the application.

The Court noted the rather draconian wording in sections 65(5) and 327(A) of the Town and Country Planning Act 1990, which state that local planning authorities "must not entertain" applications where statutory requirements to (amongst other things) notify owners of planning applications and certify that they have done so have not been met. It was agreed however, that the Court still has discretion on whether to quash a decision where such an application has been determined.

There is already some case law on this subject, which suggests that in certain cases it may not be appropriate to quash a decision notwithstanding an error on an ownership certificate, Examples given in those cases include situations where a consent has been implemented and expenditure incurred in reliance on it, or where quashing the decision would be prejudicial to the local community.

In this case, however, none of the arguments put forward were found to have merit. In particular, the Court held that it was 'far from satisfied' that the Claimant could not have influenced the outcome of the planning application had he known about it and had an opportunity to make representations. Further, the signing of the ownership was reckless (at best) and clearly contained a false and misleading statement. Charles George QC sitting as Deputy High Court Judge quoted an earlier judgment of Newman J and stated that this recklessness disclosed "a cavalier disregard for the mandatory requirements in connection with a statutory certificate". As a result, the planning permission was quashed in order that a new application containing an accurate description of the owner and the site could be determined on its merits.

This decision should be a warning to all involved in the application process to make sure that title issues are considered early, plans drawn accurately and ownership certificates completed correctly. This is an area where objectors can easily attack, and where even a basic error could have significant ramifications, particularly where a court considers that due care has not been taken. If, as applicant, you become aware of an issue during the application process, there are steps you can take to minimise the risk of your permission being quashed, but prevention must always be better than cure.

R (oao ALAN BISHOP) v WESTMINSTER COUNCIL & (1) NADEEM ULLAH (2) MORTIMER LONDON LTD [2017] EWHC 3102 (Admin)

Notification under a specific clause must be clear

Fri, 12 Jan 2018 16:01:36 Z

RBSL, the main mechanical and electrical contractor at the Davidstow Creamery in Cornwall, engaged SPL under a sub-contract dated 18 December 2014 to supply and install the steam, condensate, chilled water and cooling water systems at the site. Works were carried out between December 2014 and 31 January 2016 (the DC1 Works), and from 1 February 2016 to 30 May 2016 (the DC2 Works).

On 2 September 2016, RBSL provided SPL with a document described as "our final account assessment for the works carried out on the above project by your company". RBSL claimed that this was notification of their assessment of the proper amount due for payment in respect of the Final Account which would become binding absent SPL's timely challenge.

RBSL argued that this document was partly an assessment of the DC1 Works and partly a final account valuation of the DC2 Works (which had never been the subject of a final account claim from SPL). This distinction was not made in the document itself. SPL disputed RBSL's position as the document did not set out a figure to be paid by one party to the other.

SPL successfully brought an adjudication for sums it claimed were due for the DC2 Works and RBSL paid the sum awarded by the adjudicator.

RBSL launched its own adjudication seeking a declaration that SPL was bound by the final account assessment of 2 September 2016, following their alleged failure to challenge in writing within the contractually specified timescale. The same adjudicator found that SPL were not bound in so far as he had already awarded a higher total for the DC2 Works, but decided that SPL were bound by the remainder of the 2 September assessment.

In these proceedings SPL sought a counter declaration with the Court answering three questions:

1. Contractually, what notification was RBSL required to give SPL?

On its face the sub-contract appeared simply to require notification of the amount due for payment. However, the sub-contract drew distinction between the gross valuation and the sum due and payable.

RBSL argued the contract envisaged the assessment/valuation of the Final Account by [RBSL], not the identification of any particular payment which…would come later in the process. The Court disagreed and gave the provision its natural meaning requiring an assessment/valuation of the total amount payable less previous payments and any retention.

2. Did the 2 September 2016 assessment amount to notification under the sub-contract?

The 2 September 2016 assessment did not set out an assessment/valuation less the previous payments and retention to provide a figure of the sum due and so was not notification under the sub-contract.

Further, there was no reference in the 2 September 2016 assessment to it being notification of an amount due; the document and cover letter described it as a Final Account assessment and there was no identification of a particular sum due merely an assessment of the total value of works carried out. There was no reference to the relevant clause of the sub-contract.

3. If the 2 September 2016 assessment amounted to notification under the sub-contract, was it validly challenged?

This question was somewhat immaterial given Justice Coulson's answers to the earlier questions but, nevertheless, was considered in the judgment. Coulson J considered that there was the necessary challenge by way of SPL's notice of adjudication (served within the contractual time period).

Conclusion

A clause which may have a draconian effect, such as restricting a party's ability to challenge a sum claimed by the other, requires strict compliance and it should be clear to the recipient from the face of the document that it is intended to be a notice under that clause. In this case, the requisite notification under the relevant clause was not given, and, even if it had been the Judge considered that the subcontractor's notice of adjudication constituted a challenge in writing in any event.

12 Drummers Drumming: Pa rum pum pum pum

Mon, 18 Dec 2017 12:30:00 Z

Living next to noisy neighbours can become incredibly frustrating, but what can you do about it, especially when the activity, such as drumming, is not in itself illegal.

If the noise levels are so bad that they start to interfere with your enjoyment of your land then the activity could be deemed a nuisance. There are different types of nuisance and the test for whether an activity can be deemed a nuisance is subjective and case dependant. That does not, however, deter people from taking legal action against their neighbours which is demonstrated by a considerable amount of case law in this area.

If a nuisance is being caused, you could potentially seek legal remedies for loss caused by the nuisance, together with injunctive action to prevent the activity from continuing. That could be actual physical damage (although this is rare with noise nuisance) or loss of enjoyment of your land or property, which could result in a reduction in value.

The court will have to balance a number of factors when considering whether a nuisance is being caused such as:

Location - certain activities in rural areas may be more of a nuisance than the same activity being carried out in a city location
Time of day – is the activity being carried out during the night/day
Duration and frequency of activity
Malicious act – is the activity a reasonable use of the land
Evidence – have you got enough examples of the activity being carried out

This is a tricky balancing exercise for the court and the circumstances in each case will differ.

Another important point to factor in is whether you want to enter in to court proceedings with a neighbour when you have to carry on living next to each other in the future. It is always worth trying to resolve such matters amicably if at all possible. This is especially important if you are thinking of selling your home as any disputes with neighbours must be disclosed during the sale process. Getting the right advice can assist you in resolving the matter in the right way.

Please see our full series of festive blogs here.

11 pipers piping: How does MEES differ in Scotland?

Fri, 15 Dec 2017 08:48:37 Z

Since 1 September 2016, property owners in Scotland have been required by the "Action on Carbon and Energy Performance" ("ACEP") to adhere to energy efficiency measures when they sell or lease properties. Similar, although not the same, rules under the "Minimum Energy Efficiency Standards" ("MEES") will come into force in England and Wales on 1 April 2018.

The crux of the MEES regulations is that from April next year, all privately rented properties in England and Wales will be required to have an Energy Performance Certificate rating of E or above before a new lease can be issued.

The Scottish regime is quite different to that of the English and Welsh in that compliance in Scotland affects both the leasing and sale of properties: the MEES regulations will only effect let buildings (both commercial and domestic).

Common to both regimes is the identification of improvements through action plans in Scotland and recommendation reports in England.

The implementation of MEES will mean that:

Rent reviews for poorly rated properties will be affected
Poorly rated properties will not be allowed to be marketed unless they are upgraded
Properties with a poor rating will have a lower value as a result of their impeded marketability

In Scotland the requirement to carry out improvements can be delayed indefinitely as long as there is a valid Display Energy Certificate visible. As a result, buildings that are poorly performing will not become sustainably obsolete as is the case in England.

This could mean that owners north of the boarder are not as incentivised to invest in improvement works as those to the south.

However, many would say that the real incentive to improve energy efficiency has already been wide spread in the market place for a number of years, with tenants and prospective purchasers prepared to pay a premium for refurbished properties which embrace the latest technology and reluctant to take on those properties which are expensive to run because of old and inefficient systems.

See our full series of festive blogs here

10 Lords a-Leaping

Thu, 14 Dec 2017 13:50:18 Z

For the property world one of the most significant Supreme Court cases in recent years was Marks and Spencer plc v BNP Paribas. To re-cap, the case concerned a break clause in the retail tenant's lease. The rent was payable on the usual quarter days, but the break date was mid-quarter.

The tenant paid their full quarter's rent in advance of the break date, and the case concerned whether the tenant was entitled to receive a refund of the overpayment of rent paid for the period after the break date when the tenant was no longer in occupation.

This case was of such importance that the matter was taken to the Supreme Court. On the way up through the court system, at one stage it was held that the tenant was entitled to recover the overpayment. This was fantastic news for tenants who would otherwise lose a full quarter's rent even though they were only in occupation for a part of that quarter. That position was, however, overturned.

The Supreme Court reconsidered the issue. In brief they concluded that a term should not be implied into a lease entitling a tenant to a refund if not expressly provided for. Given that decision, what should tenants do when taking on a lease:

1. Consider whether there is a break clause;

2. If there is a break clause consider whether the break date coincides with a quarter date (or any other date on which rent/other sums are payable);

3. If the break date does not coincide with the payment date, ensure that the lease includes an express term that the tenant is entitled to receive a refund of any payments made in advance which cover the period after the break date;

4. If the break clause is conditional on all rents being paid (which is often the case) the tenant must pay all sums due for the full period in advance of the break date. If the tenant attempts to apply the apportionment prior to the break date this may invalidate the break which could be catastrophic for the tenant.

Should you have any queries regarding this process please contact us.

See our full series of festive blogs here

9 Ladies Dancing: The Mayor of London protects the night-time economy

Wed, 13 Dec 2017 11:30:00 Z

In the SPG the Mayor states that he wants to "make London the world's leading city for nightlife".

London already has the Night Tube, which the guidance suggests could add £77m a year to London's economy by 2029, so it makes great economic sense to encourage the night-time offerings – a fact that isn’t wasted on the Mayor. The current news isn't all good, however, as the number of nightclubs, pubs, and live music venues in London has fallen considerably over recent years.

The guidance states that planning decisions should "protect valued social, recreational and cultural facilities and services. They should ensure these facilities can develop and modernise, and are kept for community benefit." The SPG is a material consideration which can be taken into account in determining planning application, although it is not a policy in itself.

In the draft revised London Plan, published for consultation at the end of November, the Mayor states that he is keen to promote London as a 24-hour global city. He proposes a policy requiring boroughs to "promote the night-time economy, where appropriate, particularly in the Central Activities Zone, strategic areas of night-time activity, town centres". If adopted, this would put protection of the entertainment industry on a much stronger footing in the planning process.

Showing how the planning system can help to provide, or retain, night-time venues, one planning application in particular has hit the headlines recently: councillors at London Borough of Tower Hamlets have voted in favour of plans to convert the former Joiners Arms into residential apartments, but subject to a requirement that a late-night LGBT venue is also provided. The authority recognised London's loss of many LGBT venues over the last decade and the benefit that such a venue could bring to a community.

The Mayor is expected to take his current guidance further in 2018, when he is due to publish a Culture Infrastructure Plan, setting out how London's venues, places and spaces will be supported and sustained.

Outside London, the NPPF contains a useful reference to the requirement to "plan positively for…cultural places, public houses…" (para 70) and many local plans will contain more direct policies aimed at protecting nightclubs and similar.

See our full series of festive blogs here.

8 Maids A-Milking: Milking the Consumer during the Festive Period

Tue, 12 Dec 2017 12:00:00 Z

Christmas may be a crucial time of year for cheese sales but it is not only the dairy retailers who are looking to do some milking - all are hoping to cash in and maximise sales while the consumer is looking to fill their family's stockings.

Once upon a time you had to travel abroad to experience a Christmas market but now nearly every major town and city in the UK has embraced this style of shopping. When done well, Christmas markets capture the imagination of shoppers, create a really festive atmosphere and encourage us to part with our hard earned cash to spread that Christmas spirit.

Whilst mooching around the stalls and shops of Winchester this weekend, I was reminded of how important it is to create the right shopping environment with eye catching displays, a good mix of products and approachable sales staff who are enthusiastic about their products.

So whilst 2017 has not been a good year for retailers generally, with rising staff costs, business rates and import costs being just some of the issues they have had to tackle, those who are able to adapt and successfully target the shopping experience many people crave can still do well and stand out in this most competitive of markets.

In many ways this is as true for high street shops and online retailers as it is the festive stall holders. Create the right atmosphere and people will buy. Alluring displays which make products easy to find, helpful and competent staff, intuitive interfaces and user friendly checkouts are all crucial to those wanting to ensure that they cash in on the season for giving.

The challenge for many retailers will be to sustain these principles all year round and to keep innovating to make the consumer experience one that they look forward to: we have seen some fascinating news stories of how retailers are doing just that and we look forward to seeing how things progress in 2018.

See our full series of festive blogs here.

FIDIC Rainbow Suite: Second Editions unveiled

Tue, 12 Dec 2017 09:42:58 Z

The philosophy behind the revised contracts is greater clarity and transparency with an emphasis on avoiding disputes and quickly resolving them when they do arise. We highlight some of the key changes within this note.

Revised claims procedure

Clause 20 deals with the notification of Claims (requests for an extension of time or additional payment) and their determination by the Engineer. An extensive procedure for notifying and determining Claims is set out, the most notable feature of this procedure being the inclusion of a number of time bars. By way of example, a Claim must be notified within 28 days of a party becoming aware, or when it should have become aware, of a relevant circumstance or event otherwise it is liable to be barred. Likewise, failure to provide the contractual or other legal basis of a Claim within 84 days of it arising renders the Claim susceptible in a similar way.

Contractors engaged under the new Second Editions should be aware of the multiple new time limits and ensure they have the resources available to meet them otherwise they risk losing entitlements to extra time and/or money.

Dispute Adjudication and Avoidance Board (DAAB)

Clause 21 covers the resolution of Disputes (the rejection of a Claim) and more specifically the DAAB. As the new name suggests, the DAAB has an increased role in helping the parties avoid disputes arising. Parties can now jointly request informal assistance or advice from the DAAB to resolve a Dispute. In addition, the standing DAAB is to visit the site regularly and meet with the parties throughout the duration of the contract and can invite the parties to refer a matter to it if it becomes aware of a potential dispute.

Role of the Engineer

The role of the Engineer has been updated. The Engineer is now under a duty to encourage discussions between the parties to reach an agreement on any Claims and is required to determine Claims in accordance with the detailed Claims procedure (referenced above).

Importantly, when seeking an agreement or making a determination, the Engineer must act "neutrally" and so, in such circumstances, is not deemed to be acting on behalf of the Employer. This neutrality is all the more important given that the Engineer can waive a failure to comply with a time bar, taking into account whether the other party would be prejudiced by acceptance of the late submission or had prior knowledge of the relevant matter.

Early warning procedure

Parties must now give one another early notice of any known or likely circumstances which may adversely affect the works.

Increased programming requirements

The Contractor is required to update the programme to reflect actual progress and provide proposals to deal with the effects of any delays. Whilst the programme is still not considered a formal contract document, the Engineer must review it to ensure its compliance with the other obligations of the contract.

Notice requirements

To reduce potential disputes over whether something constitutes a 'notice', a notice sent under the Second Edition contracts must expressly state on its face that it is intended to be a "Notice".

Comment

The Second Edition of the FIDIC Rainbow Suite sets out more extensive procedures for parties to follow with the aim of encouraging dispute avoidance from an early stage. It will be imperative for those using the Second Editions to be aware of the changes, particularly with regard to the new time limits to avoid Claims becoming time-barred. The new provisions are likely to result in a greater administrative burden and parties should consider their ability to manage this burden if choosing to enter into one of FIDIC's Second Edition contracts.

Those in the tunnelling industry should also note that an Emerald Book for tunnelling and underground works is anticipated as an addition to FIDIC's suite of standard form contracts. The publication date of the draft contract has yet to be confirmed.

7 Swans-a-Swimming: new regulations are there to protect them

Mon, 11 Dec 2017 11:30:00 Z

That question can be answered fairly shortly – they say pretty much the same thing as The Conservation of Habitats and Species Regulations 2010. The same is true of the references in the Regulations to habitats and animals.

The catch is that the regulations are numbered slightly differently, so practitioners should be aware and make sure that they are using the correct references.

The new Regulations came into effect on 30 November 2017, and were made to consolidate various amendments which had been made to the 2010 Regulations. They update and clarify some small points, but otherwise contain little in the way of new law.

In relation to the wild bird habitats, regulation 10 contains the duty on various bodies to exercise their functions to achieve the objectives of the "preservation, maintenance and re-establishment of a sufficient diversity and area of habitat for wild birds in the United Kingdom". This is the same duty as was previously in regulation 9A. These functions will include those functions relating to town and country planning and to support this duty Natural England has issued advice as to how planning authorities should determine applications where wild birds may be affected. This will require the consideration of surveys and potentially mitigation (or occasionally compensation) works.

Wild birds themselves, and their nests and eggs, are offered further protection by the Wildlife and Countryside Act 1981. It is this Act which, amongst other things, makes it an offence to intentionally injure, kill or take any wild bird or to damage or destroy their nest or eggs.

See our full series of festive blogs here.

6 Geese A-Laying: The Significance of laying the Golden Brick

Fri, 08 Dec 2017 12:00:00 Z

Golden brick is a term used to describe the level of construction a new development needs to reach in order to qualify for zero rating. This enables housing associations (who can't recover VAT) to purchase land free of VAT which might otherwise be charged. It also allows the developer to recover its own VAT. Without it, either the developer would be unable to recover its VAT, or, if it opted to tax in order to recover its VAT, the housing association would be liable to pay VAT that the housing association would be unable to recover.

HMRC requires the building to be "clearly under construction" in order to have reached the golden brick stage. In the context of most buildings, this will be when the foundations are complete and the walls of the building have started to be constructed. However, if there is a non-residential element on the ground floor then the golden brick stage will have been reached when the bricks of the walls above that non-residential floor are under construction.

Often transactions are structured in such a way that the housing association is involved early on and pays a deposit before construction has started. This deposit must be held as stakeholder in order to avoid a tax point arising before the golden brick stage has been reached. Only after the golden brick stage has been reached should the sale complete and the deposit be released if the parties want to preserve their different VAT requirements.

It might be possible to structure the transaction in such a way that it constitutes a transfer as a going concern (TOGC) and achieve the same result of the initial developer recovering VAT without VAT being charged on the TOGC. This would also enable a sale before the golden brick stage had been reached. The important criteria in this instance would be the ongoing development. The development would need to be actively under construction at the time of the TOGC.

See our full series of festive blogs here.

5 gold rings: a sensible way of paying for your Christmas shopping?

Thu, 07 Dec 2017 11:30:00 Z

Our trainees write some brilliant blogs over at 'Trainees take on business' and a recent post on "The rise of the 'tap and go' cashless society" caught my eye.

The post would be an interesting read for anyone involved in the retail sector. I don't intend to repeat any of the facts and figures here, but it goes without saying that cashless payments don't come without risk. One of those must be the rise of cyber-crime.

As systems become smarter, so too do those intent on hacking them. Retail units and shopping centres are often used as examples of potential targets and the risk may come from something as simple as point of sale (PoS) systems.

In an article published this summer, we were quoted as saying that the number of UK retailers experiencing data breaches has doubled over the past year. Whilst some of that will be down to human error, there is a clear need to keep PoS and other software up to date and ensure that the relevant checks and balances are in place. Just last month, the clothing retailer Forever 21 confirmed there has been unauthorised access to data at some of its stores caused by the encryption on some PoS devices not being in operation.

On a larger scale, many retail units and shopping centres are likely to have building management systems that are open to the risk of cyber-crime. It is not uncommon for heating and other systems to be controlled remotely and, if control falls into the wrong hands, the financial and reputational repercussions could be significant.

Whether landlord or tenant, all those involved in the retail sector should be alive to the risk of cyber crime and, where relevant, ensure that the matters are dealt with adequately in property documentation.

See our full series of festive blogs here.

4 Calling Birds – it's good to talk…

Wed, 06 Dec 2017 11:00:00 Z

Telecommunications providers will often have leases of technical sites rather than owning the land used for telecoms equipment outright.

Leases of technical sites can often be quite complex. Firstly, as the site is being used for a business purpose, the lease may be governed by the Landlord and Tenant Act 1954 ("LTA 1954") which gives tenants protection at the end of their lease term, and an automatic right to request a renewal of their lease.

Technical site leases may also receive protection under the current Electronic Communications Code. This gives the tenant additional rights and makes the landlord's process of seeking to remove a tenant more difficult.

The government are, however, shortly due to implement the new 2017 Electronic Communications Code which is designed to remove any tension between the Code and LTA 1954 tenancies by providing that only one regime will apply. A tenant will no longer enjoy protection under both the Code and the LTA 1954.

Whilst tenants may lose out on this double protection, commentary from experts suggest that the 2017 Electronic Communications Code is likely to result in a reduction in compensation being paid by tenants to landlords. If your landlord is trying to renew your technical site lease now, be wary. The terms being offered may be more favourable to your landlord than they would be following the implementation of the 2017 Electronic Communications Code.

See our full series of festive blogs here.

3 French hens: are too many of our house-building eggs in their baskets?

Tue, 05 Dec 2017 11:30:00 Z

It has been fairly widely reported that Britain's construction industry is taking on fewer workers due to the current economic uncertainties. With reduced confidence amongst some firms, and a risk that fewer foreign workers will be looking to move (or stay) here for work, there is bound to be some impact on building rates, although the extent of this remains to be seen.

At a recent seminar which I attended, Sir Terry Morgan, Chairman of Crossrail, said that the country does not need more bricklayers, it needs to work out how to use technology to reduce the number of bricklayers needed – and that sounds attractive when you think about the vast number of new homes which the government proposes are needed over the next few years.

It is reported that Britain imports around a fifth of its bricks from continental Europe. Will that need to change? Regardless, now seems like a very good time to consider alternative, modern methods of construction ("MMC"). Using pre-made frames and panels would reduce the need for specialist workers, and indeed labour requirements for such schemes are generally lower than for the more traditional construction methods in any case.

Last summer, the NHBC Foundation published a report which set out the housebuilding industry's main reasons for considering use of MMC. The main reason was to achieve a faster build programme, but not far from the top of the list was as a way to tackle the skills shortage – and indeed this was given as the main reason that organisations expected MMC to play a greater role in house building in the future. The report goes on to say that over 40% of the house builders and housing associations questioned confirmed that this was indeed one of the practical effects of having chosen modern methods.

It seems that talk about MMC is becoming more commonplace, and the government has committed to encouraging them in the recent white paper 'Fixing our broken housing market'. Whilst they may need a bit more of a push to be seen as a serious alternative on a large scale, it will be interesting to see what will happen over the next couple of years. Ironically of course, MMC have already seen great success in many European countries.

See our full series of festive blogs here.

2 Turtle Doves

Mon, 04 Dec 2017 11:00:00 Z

A common misconception is that a quiet enjoyment covenant entitles a tenant to peace and quiet. Unfortunately the law is not that simple.

A quiet enjoyment covenant can be expressed or implied and essentially means that a landlord cannot interfere with a tenant's possession and enjoyment of their property. The landlord therefore cannot simply walk in to the premises (subject to lease notice requirements) or carry out works which interfere with the tenant's access to their property.

The covenant does not, however, entitle a tenant to prohibit their landlord from carrying out works which may cause noise or disturbance. A quiet enjoyment covenant must be balanced with rights which the landlord may retain to carry out works on the rest of their premises. As long as the landlord takes reasonable steps to minimise the disturbance to the tenant then in most instances the quiet enjoyment covenant will not be breached even if peace is disturbed.

A landlord should take the following steps:

Provide information to the tenant about the intended works and timetable to completion;
If appropriate advise the tenant that noisy works will be limited to certain hours of the day;
Consider whether it would be reasonable to offer financial compensation to the tenant for any disturbance caused;
Explain to the tenant if the works will ultimately benefit them (such as smartening up common parts).

In the event that a landlord has failed to follow these steps a tenant may be entitled to seek injunctive relief for breach of covenant.

If you have a landlord who is interfering with your quiet enjoyment please do get in touch.

See our full series of festive blogs here.

A Partridge in a Pear Tree

Fri, 01 Dec 2017 11:00:00 Z

Mr Partridge, an assured shorthold tenant was notified of Mr Gupta's intention, as his landlord, to apply for a writ of execution but was the notice sufficient?

The background to the case Partridge v Gupta [2017] EWHC 2110 (QB) is that Mr Gupta, having issued possession proceedings in the County Court against Mr Partridge and his family under section 21 of the Housing Act 1988, wanted to transfer the claim up to the High Court, obtain permission to issue the writ and execute it (the High Court Enforcement Officers being a more speedy route to execute than County Court bailiff appointments).

Mr Partridge was refused permission to appeal the possession order and Mr Gupta was granted permission to transfer proceedings to the High Court. Notice was then served on Mr Partridge and separately on "the occupiers" informing them of a) the application to transfer proceedings to the High Court and b) the intention to issue a writ of possession. However, the application to issue a writ of possession was made without notice and the order granted some 3 months after the notice letters were sent.

The High Court is only allowed to permit a writ of possession to be issued under CPR r83.13(8) if

"every person in actual possession of the whole or any part of the land […] has received such notice of the proceedings as appears to the court sufficient to enable the occupant to apply to the court for any relief to which the occupant may be entitled".

The guidance in this case issued by Foskett J. made it clear that notice of intention to apply for the writ was sufficient as Mr Partridge knew enough about the proceedings to be able to apply for any appropriate relief. No further notice was needed following the application to issue a writ of possession.

Here is the link to all our other blogs.

Payment and Payless Notices – the Basis of Calculation – Judicial Guidance at last

Mon, 13 Nov 2017 10:23:39 Z

The Facts

Muir Construction Limited (Muir) entered into a design and build contract with Kapital Residential Limited (Kapital) for the construction of a new housing complex in Rosyth, Scotland. Various disputes arose between the parties, namely in relation to defects and the valuation of Muir's final account. A number of differences were resolved and as a result, the parties entered into a settlement agreement in April 2016.

The rectification period under the contract was twelve months from 21 July 2015 and, pursuant to the settlement agreement, Kapital were to release the final moiety of retention monies to Muir by 31 December 2016, having deducted any costs incurred by Kapital for the remedy of any defects.

Kapital purported to issue a payless notice on 21 December 2016 valuing the sum due to Muir as zero. Muir claimed that the payless notice was invalid on the basis that it did not specify the basis on which the sum had been calculated. Kapital argued that previous correspondence between the parties explained the calculations.

The basis of calculation

Lord Bannatyne held that the intended payless notice was not valid. The payless notice simply stated the sum due as zero and did not detail how that sum had been calculated. He explained that the information provided in a payless notice needed to allow a reasonable recipient to work out the basis on which the sum had been calculated. Additionally, in a nod to the old regime, the Judge also suggested that in order to provide the basis on which the sum is calculated, the payless notice needed to set out "the grounds for withholding and the sum applied to each of those grounds with at least an indication of how each of those sum were arrived at."

Lord Bannatyne added that the settlement agreement was clear in that Kapital had to have incurred the costs which they intended to retain. A liability to pay those costs (for example, under a due and payable invoice) was not sufficient and instead the costs had to have been paid by Kapital in order for Kapital to be able to exercise its right of retention.

Commentary

Whilst heard in the Scottish courts, this case does provide useful guidance which would likely be followed in England and Wales when ensuring that payless (and payment) notices are compliant with the Act. Such notices need to be clear and contain sufficient detail to ensure the recipient understands the basis on which the sum is calculated.

On the back of the Muir judgment, it appears that paying parties can dust off their old pro-forma withholding notices and use those as a starting point for their payless notices. To mitigate the chances of a payee being entitled to a windfall payment on a technicality, paying parties should specify the sum they consider to be due as at the date of the notice and the basis of calculation which should include an arithmetical calculation and set out the grounds for any deductions made and the amount attributable to each ground. In practice, this is often done in a schedule appended to and forming part of the notice itself. Paying parties should also continue to be aware of and comply with all other requirements for payless notices including the time and means of service.

Given the requirements for a payment and payless notice under the amended Act are identical, the above requirements will apply equally to payment notices.

Court of Appeal

On the topic of payment notices, there was also a guidance from the Court of Appeal this month on the application of the payment provisions of the Act when, in Adam Architecture Ltd v Halsbury Homes, the court confirmed that the provisions apply not only during the currency of a construction contract but also following completion or termination.

Halsbury had sought a declaration from the court that the payless notice requirements did not apply following termination of their contract with Adam but in giving the leading judgment, Jackson LJ dismissed such a suggestion based on the "clear words in the Act".

Consequently, paying parties need to serve a payless notice in response to any application received if they wish to avoid the prospect of an adjudicator’s decision against them for the full amount claimed on the basis of a technicality. Consistent with guidance from the 2015 case of Harding v Paice if a paying party fails to serve a payment or payless Notice in response to a final application, then the sum applied for has to be paid in the first instance albeit the paying party will still have the right to commence its own adjudication to determine the true value of that final application.

Sinking and Reserve Funds – how best to save for a rainy day

Wed, 08 Nov 2017 14:30:00 Z

Long leases regularly used to provide for sinking funds but since the introduction of shorter leases and difficulties with how such funds are taxed and administered, there has been a decline in their use.

Landlords do, however, still need to accumulate adequate funds from tenants for the more expensive works which will need to be carried out to a building over its lifetime and smoothing out the costs year to year.

At a recent conference where RPC partnered Revo to host agents from across the retail sector, David Johnston of RPC, Avis Sayer of Service Charge Analytics and Peter Forrester, Chairman of the RICS Service Charge Working Group, discussed how important it is for agents to know how such funds should be dealt with, in order to avoid disputes between landlords and tenants.

Sometimes a distinction is drawn between a sinking fund and a reserve fund based on the anticipated lifetime of the fund.

Sinking funds often set aside money for the replacement of particular wasting assets over the longer term (e.g. heating and air-conditioning plant and equipment, lifts, etc.) whereas reserve funds often provide for the more general cost of maintenance and upkeep such as external cleaning and redecorations likely to re-occur every 5 years or so.

Bearing in mind that longer duration, it is often better for sinking funds to be held on behalf of the tenants from time to time. On the other hand, a reserve fund is more likely to be spent during the terms of a single lease and therefore could be considered as belonging to the tenant for the time being, being repaid to the contributing tenant if it remains unspent by the end of the term.

It is important to remember that no fund can lawfully be held if the lease does not specifically provide for it. The RICS guidance note on sinking funds, reserve funds and depreciation charges authored by Peter Forrester suggests what the lease provisions ought to cover, namely:

    • who the money properly belongs to;
    • the purpose for which the fund is being accumulated and its timescale; and
    • what will happen to it at the end of the lease.

The panel discussed the benefits of itemising areas of expenditure and then spending only on those things. The general consensus was that properly managed funds should be specific, ring fence expenditure and not allow too much or too little to accumulate.

Audience members were interested to know what could happen to the funds at the end of the lease and the panel discussed lease drafting which could provide for funds:

    • being paid back to the tenants who contributed if unspent at the end of the term;
    • being paid back to previous tenants if the building is demolished or;
    • remaining within the fund until it is needed.

All of the above should be the subject of negotiation between the parties when lease provisions are being drafted.

A key message throughout the day was that service charge provisions should not place a tenant in any worse position than if it were taking a lease on full repairing and insuring terms and many disputes could be avoided if this principle was adhered to.

Construction Act and Retention consultations published by the Government

Thu, 02 Nov 2017 16:48:02 Z

2011 changes to the 'Construction Act'

In 2011 changes to the Construction Act were predominantly concerned with payment provisions and adjudication. The Government said at the time that it would undertake a review after five years to assess the effectiveness of the changes. It has now launched this consultation. Many will feel it is timely particularly given the issues created by the development of the "smash and grab" adjudication.

The purpose of the consultation is to review the impact of the 2011 changes with questions split into the following sections:

the effectiveness of the 2011 changes;
general questions about the whole framework set out under Part 2 of the Construction Act;
the affordability of adjudication, its misuse and its continuing relevance.

Responses to the consultation must be submitted by 11:45 p.m. on 19 January 2018 and the questions can be accessed here.

Retention payments in the construction industry

A recent research paper, commissioned by the Government regarding retention in the industry highlighted some interesting points (including the average amount of retention typically held by clients equates to 4.8% of the contract value) and challenges facing the industry in relation to retentions. The research found that payment of retentions was sometimes being held conditional on performance of obligations under other contracts (contrary to the Construction Act). Moreover, it is evident that some contractors have been paid the retention unjustifiably late or not at all.

The consultation on retention payments therefore aims to obtain views on:

the findings by the independent research paper outlined above;
the effectiveness of existing prompt and fair payment mechanisms for retentions; and
the effectiveness of alternative mechanisms to retentions.

The consultation is to run alongside the consultation on the 2011 changes to the Construction Act. Responses must also be submitted by 11:45 p.m. on 19 January 2018 and the questions can be accessed here.

From light industrial to residential – the new permitted development right

Wed, 01 Nov 2017 14:30:00 Z

We should start by noting that the permitted development right to change the use of a building, and any land in its curtilage, from B1(c) to C3 is only a temporary one, and is subject to the prior approval process. The right applies only where the application for prior approval is made on or after 1 October 2017 and where prior approval is given or confirmed as unnecessary on or before 30 September 2020. A further time restriction is that the change of use must be completed within three years of that prior approval date.

These time constraints are likely to be of significant concern to developers so it will be interesting to see whether the right makes it onto a more permanent footing in due course, as has happened with the office to residential provisions.

The new 'Class PA' right in the Town and Country Planning (General Permitted Development) (England) Order 2015 also only applies where the gross floor space of the building is 500 square metres or less, which will automatically rule out many industrial buildings. Further, the building must have been in use solely for light industrial purposes on 19 March 2014 (or when last in use if not in use on that date), and the application needs to be accompanied by a statement setting out evidence of how the building was used for light industrial purposes on the relevant date. This precludes the very newest light industrial buildings from relying on the right.

The prior approval process will give local authorities some say over the acceptability of any highways impact, contamination risk, flood risk and, where the authority considers that "the building to which the development relates is within an area that is important for providing industrial services or storage or distribution services or a mix of those services", whether the change of use of the building to residential would have an adverse impact on the sustainability of the provision of those services in the area. There may therefore be some market testing to be done in order to rely on the PD right.

Despite this ability to review the above impacts and thereby retain some control over the use of the PD right, many London Boroughs, and local authorities outside the capital, have already secured article 4 directions or started the process of getting them in place, effectively negating the right and ensuring that proposals are subject to the planning application process in the usual way.

Listed buildings, and those in certain other areas, such as SSSIs and safety hazard areas, are not able to rely on this permitted development right.

With all the above restrictions, and the fact that the PD right only relates to the change of use rather than permitting any building or other operations required to make the change work, you can see that the opportunities for making the most of this new provision will be limited - which may be why we have heard so little about them a month in. That said, the right has been brought in for a reason and in some areas this could be a highly effective way to get redundant buildings back into use and increase the housing stock. Time will tell.

Adjudication – mind the recovery gap

Mon, 23 Oct 2017 10:03:34 +0100

There has been an increase in the past couple of years in parties seeking to recover their costs of adjudication through purported reliance on the Late Payment of Commercial Debts (Interest) Act 1998 (Late Payment Act) with varying degrees of success. However, O'Farrell J decision to sever an adjudicator's decision as she considered that the adjudicator did not have jurisdiction to award costs under the Late Payment Act in the recent case of Enviroflow Management Ltd v Redhill Works (Nottingham) Ltd (2017) (unreported, 16 August 2017) may just put an end to that trend.

In Enviroflow, the Judge upheld the balance of the award (£81,000), but severed this from the sum of £14,900 which had been claimed by the Referring Party and awarded by the Adjudicator pursuant to the Late Payment Act.

Whilst the decision is unreported, it is understood that the Judge's reasoning was based on the tension between section 5A of the Late Payment Act and section 108A of the Housing Grants, Construction and Regeneration Act 1996 (HGCRA), with s108A HGCRA prevailing.

Section 5A of the Late Payment Act allows a successful party to recover their reasonable costs of recovering a debt. However, s108A HGCRA requires that provision for the recovery of costs in adjudication is only valid if it is agreed in writing after the Notice of Adjudication has been served.

It was common ground in this case that, on the facts, no such agreement had been made and so the Referring Party's attempt to recover its costs was contrary to the HGCRA. In the spirit of adjudication, providing a timely and cost effective solution, and in line with the general rule that parties are responsible for their own costs in adjudication, O'Farrell J gave precedence to the provisions of the HGCRA over the implied right of recovery in the Late Payment Act.

North Midland Building Limited v Cyden Homes Limited [2017] EWHC 2414 (TCC): Choose your extension of time provisions carefully

Wed, 11 Oct 2017 14:49:26 +0100

The Background:

The Contractor and the Employer agreed a bespoke amendment to the JCT Design and Building Contract 2005 at clause 2.25 which provided that "any delay caused by a Relevant Event which is concurrent with another delay for which the Contractor is responsible shall not be taken into account" in relation to an extension of time.

The Contractor sought that the Court decide, in accordance with Multiplex Construction (UK) Limited v Honeywell Control Systems Limited [2007] BLR 195, that (i) the amendment at clause 2.25 set "time at large" in situations where there was a concurrent delay and; (ii) in the alternative, the prevention principle applied enabling the Contractor to complete the project within a reasonable time, voiding liability for LADs.

The common law doctrine of prevention provides that a party may not enforce contractual obligations where that party has prevented the obligation from being performed. In circumstances where a contractor has been delayed by an employer, the principle would allow a contractor to complete works within a reasonable time.

The Decision:

Fraser J was of the clear view that the prevention principle did not arise. Clause 2.26 of the contract expressly classified acts of prevention as Relevant Events clearly demonstrating how the parties intended extensions of time to be dealt with in relation to acts of prevention: an act of prevention was a Relevant Event.

Therefore, the only issue to be determined was the meaning of clause 2.25. Fraser J found that clause 2.25 was "crystal clear": "the contractor would not be entitled to any extension of time for Event X (for which he was not responsible) in so far as delay caused by that event was concurrent with delay caused by Event Y (for which he was)". It was noted, in perhaps unsurprisingly terse terms, that the parties can agree whatever terms they so choose provided they abide by the law and meet any necessary minimum requirements imposed by statute.

Comment:

An emergence of amendments such as clause 2.25 in North Midland (which, of course, now confirms the effectiveness of this specific drafting) will make it even more difficult for contractors to be granted extensions of time. If such clauses do emerge we will see the reverse of the traditional position, such as in Saga Cruises BDF Ltd and Anor v Fincantieri Spa [2016] EWHC 1875, of the contractor arguing that concurrency should be broadly defined and potentially much more debate about the meaning of concurrency itself.

This judgment highlights the trite but important point that parties are free to make amendments to the extension of time provisions in their construction contracts; the common law will not generally enable the parties to depart from their express intentions. In other words, provided that the required Relevant Events are present the Court will determine the precise effect of those Relevant Events in line with the contractual provisions agreed between the parties.

This case is therefore first and foremost a reminder to contractors to carefully consider extension of time provisions at the outset, as employers may seek to diminish or alter the extension of time that a contractor might otherwise expect to receive.

It is well established at common law in England and Wales that a contractor is entitled to a full extension of time, rather than an apportionment, in instances of concurrent delay. The parties may however, as in North Midland, expressly provide that Relevant Events do not apply where there is concurrent contractor delay, or alternatively they may agree to contractually apportion this concurrent delay. Relevant Events may also take effect either contiguously or non-contiguously (i.e. at the beginning of the Contractor's delay period or during the period in which the Relevant Event is actually felt) – this will be most relevant where LADs are graduated. The parties must therefore carefully consider how (or indeed if) these risks are to be apportioned.

Serial referrals and abandoned adjudications: will the court grant an injunction prohibiting adjudication proceedings?

Mon, 09 Oct 2017 14:03:12 +0100

Background

On 8 February 2017, Skanska gave notice of an intention to refer a dispute to adjudication, claiming damages over an alleged defective design produced by Jacobs. On 13 February 2017, the parties agreed to the applicable procedure rules and a modified adjudication timetable. However on 7 April 2017, Skanska withdrew from adjudication on the basis its counsel had become unavailable and was unable to meet the agree timetable. Some two months later, on 21 June 2017, Skanska issued notice of its intention to refer a second adjudication –the dispute and substance of its claim was the same as the previous but a different adjudicator was appointed.

Jacobs, who had incurred substantial costs in preparing for the first adjudication, commenced part 8 proceedings on the basis that Skanska's behaviour was unreasonable and oppressive and sought an order requiring Skanska to withdraw from the second adjudication and a declaration that Skanska were responsible to pay Jacobs' wasted costs from the first adjudication.

Skanska argued that the abuse of process principle was not applicable to adjudication, and that a party is entitled to seek any tactical advantage it can, even if that includes the commencement and withdrawal of serial adjudications.

Decision

It was held that that although Skanska's withdrawal from the February 2017 adjudication was unreasonable, starting a second adjudication was not oppressive because on the facts, the substance remained the same and Jacobs could rely upon its previous submissions and earlier work. O’Farrell J agreed with Skanska that the principle of abuse of process does not apply to adjudication.

However, the Judge rejected the submission that continual opening and closing of adjudications is always available to the parties – and clarified that the court has the power to grant relief to prevent such tactics, particularly where new material (such as new expert evidence) is so "severe or exceptional".

This was not the case here but because the parties had entered into an agreement governing the timetable of the first adjudication after the notice of adjudication was given; the Judge declared that Jacobs was entitled to its wasted or additional costs resulted by Skanska's unilateral withdrawal which amounted to a breach of contract.

Decision analysis

This judgment reinforces the TCC's support for adjudication and the underlying principles, with the Judge noting that this case highlights that any "inherent unfairness in the adjudication process is justified by the advantage of speed and efficiency in obtaining a decision and balanced by the temporary effect of any decision".

It is also reiterates that injunctive relief arising from adjudication proceedings are only granted by the court in fairly limited circumstances, largely because the Construction Act 1996 allows parties to refer a dispute to adjudication "at any time". Save for exceptional circumstances, the courts are generally reluctant to interfere and grant an injunction which would potentially undermine the adjudication process. As Edwards-Stuart J recorded in Twintec Ltd v Volkerfitzpatrick Ltd [2014] EWHC 10 (TCC), for a referral to adjudication to be considered oppressive and unreasonable, both elements have to be present to a "fairly high degree". The Judge suggested examples of unreasonable and oppressive behaviour could include referring a dispute shortly before Christmas when witnesses are no longer available to the responding party - well worth keeping in mind as the festive season approaches.

To see the full judgment of this case, click here.

The Mayor of London's Affordable Housing SPG: 10 things you need to know (part 2)

Wed, 30 Aug 2017 14:30:00 +0100

Part 1 of this blog post can be found here.

6. Financial information is more likely to be made public

The Mayor is keen for the system to be transparent. This means that where schemes are relying on viability arguments, it is likely that this financial information will enter the public domain. Where information is particularly sensitive, applicants can request that it remains confidential, but this is only likely to be accepted in very exceptional circumstances, where disclosure would cause harm to the public which would not be outweighed by the benefits of transparency. Applicants will also have to provide the authority with the full working model and/or all assumptions and calculations used in their assessment, together with detailed evidence to support the inputs.

7. There's a risk attached if applicants offer less than 35%

If an applicant claims that 35% affordable housing without public subsidy is not achievable, that claim will be scrutinised by the planning authority and sometimes the Mayor. Where those parties consider that more is viable than is proposed, they can require more to be provided, and that requirement can exceed the 35% level. A maximum 50% is suggested, although reference can instead be made to the relevant local authority's affordable housing target. This increased provision could be required at an initial stage, or as part of a review which takes place during the build process.

8. Applicants will have to engage early with registered providers

The SPG requires that 'in all cases' the applicant should work with registered providers at an early stage and also consider whether they can access grants or other funding in order to increase their proposed level of affordable housing. Registered providers should be asked to commit to the provision at an agreed purchase price.

9. The Mayor has suggested a tenure split too

In an effort to secure the homes which London needs, the SPG sets out a preferred tenure split of:

at least 30% social rent or affordable rent (using London Affordable Rent as the default level);
at least 30% intermediate (using London Living Rent and/or shared ownership as the defaults); and
40% to be determined by local planning authorities

The SPG acknowledges that where 35% affordable cannot be provided, considering a different tenure split will be the starting point for negotiations.

10. Different rules apply to build to rent homes

Build to rent homes, as newly defined in the SPG, are encouraged and it is recognised that their economics differ from build for sales schemes. As such, all build to rent schemes will be subject to viability testing, to determine the maximum amount of affordable housing that can be provided. We cannot cover all aspects of this part of the SPG in this blog post, but should mention that the Mayor recognises that affordable units within a build to rent scheme can be discounted market rent (DMR), managed by the build to rent landlord rather than a registered provider or local authority. There is a preference for such units to be let at London Living Rent levels.

The Mayor of London's Affordable Housing SPG: 10 things you need to know (part 1)

Thu, 24 Aug 2017 12:30:00 +0100

1. This is the Mayor's 'preferred approach'
This SPG is the Mayor's preferred approach to implementing relevant London Plan policies and provides a framework for delivery of the maximum amount of affordable housing – it does not (and cannot) contain new policies itself. This SPG replaces sections 3.3 and 4 of the March 2016 Housing SPG, with the rest remaining current. The replaced parts of the earlier SPG are helpfully showing as struck out in the online version. Whilst local planning authorities are 'strongly encouraged' to follow this new SPG when determining applications of schemes of 10 homes or more, the SPG does expressly state that where a local plan will deliver more affordable housing, without public subsidy, that local approach can continue to apply.

2. A fast-track route through the planning process is being introduced
If the relevant authority is applying the SPG, applicants will not have to submit any viability evidence if they are promising at least 35% onsite affordable housing (50% on public land and potentially more for registered providers), to be provided without public subsidy, provided this offer meets tenure and other local requirements and the applicant has sought to increase the offer beyond 35% through the use of grants. This is being sold as a 'fast-track process', but the standard legal test for the determination of applications in accordance with the development plan unless material considerations indicate otherwise will still apply.
The percentage of affordable housing will usually be measured by habitable rooms but the figures should also be presented by percentage of units and floorspace. The fast-track route will not be available for estate regeneration schemes where existing affordable housing is being demolished.

3. The pressure will be on to deliver quickly
The SPG states that one of its main aims is to accelerate overall housing delivery. As well as tackling the planning process as set out above, there is some incentive after that to actually get building: if agreed progress hasn't been made within 2 years of the grant of consent (or as otherwise agreed), a viability review will be needed – regardless of whether applicants have benefitted from the fast-track planning route. This review could result in further affordable housing being required onsite, and plans will have to show which units could switch to affordable housing in such a case.

4. Land value figures will have to stand up to close scrutiny
The SPG contains detailed guidance on how viability assessments are to be carried out, with a view to creating a clear and standardised approach. Benchmark land values are expected in most cases to be based on 'existing use value plus'. Fixed land values are considered inappropriate, and alternatives to EUV+ will only be considered in exceptional circumstances. It should be clear that policy requirements, s106 obligations and CIL charges have been factored in to the land value.

5. S106 agreements aren't going away
Where the fast-track process isn't available, reviews will need to be carried out during the build process. Whilst the SPG advocates a standard approach to review mechanisms (with the late stage reviews take place when 75% of the units are sold or let), there will still be an element of negotiation required. In the absence of any general legislation requiring these reviews, the detail will have to be agreed between the parties, and all the necessary 'whens' and 'hows' (and the 'who is paying' – although, spoiler alert, this will be the applicant) secured via s106 agreements.

Part 2 of this blog post will be published shortly – please do subscribe to receive an alert as soon as it is available.

Contractors and Insurers beware - Contractor found to bear the risk of an incorrect standard as fitness for purpose prevails in the Supreme Court

Thu, 03 Aug 2017 17:23:12 +0100

The issue to be decided was whether a contract for the design and installation of foundations for an offshore windfarm imposed a fitness for purpose obligation on the contractor amounting to a warranty that said foundations would have a service life of 20 years.

In its Judgment the Supreme Court gave full effect to a fitness for purpose obligation even though it was not in a prominent place in the contract and held that the contractor had breached the contract even though it had complied with the relevant internationally recognised standard and carried out the works with reasonable skill and care.

The facts

The foundations of two offshore wind farms at Robin Rigg in Solway Firth, which MTH had designed and built for E.ON, failed shortly after completion.

The contract included a provision that "the design of the foundations shall ensure a lifetime of 20 years in every aspect without planned replacement".

However, the contract also contained a number of other provisions which required reasonable skill and care, a design life of 20 years, and compliance with an internationally recognised standard for the design of offshore wind turbines which provided for a design life of 20 years.

MTH had complied with the standard and carried out the work with reasonable skill and care but the standard turned out to be wrong and this was the reason the foundations failed.

The TCC

In the TCC Mr Justice Edwards-Stuart found that E.ON was in breach of a contractual warranty that the foundations would have a service life of 20 years.

The Judge held that that the construction contract required MTH (a) to comply with particular specifications and standards and (b) to achieve a particular result (a service life of 20 years). The contract therefore imposed a double obligation upon MTH to as a minimum, comply with the relevant specifications and standards and, in addition, to take such further steps as are necessary to ensure that it achieved the specified result. In other words, MTH had to ensure that the finished structure conformed to that which he had warranted.

Court of Appeal

However, the Court of Appeal (Lord Justice Jackson) found that the provision in the contract requiring MTH to achieve a result, namely foundations with a service life of 20 years, was inconsistent with the remainder of the provisions in the contract which only required reasonable skill and care and a design life of 20 years.

Lord Justice Jackson held that the provisions regarding service life were "too slender a thread upon which to hang a finding that MTH gave a warranty of 20 years life for the foundations".

Supreme Court

This morning the Supreme Court upheld E.ON's appeal and in an unanimous decision Lord Neuberger found that "while each case must turn on its own facts, the message from decisions and observations of judges in the United Kingdom and Canada is that the courts are generally inclined to give full effect to the requirement that the item as produced complies with the prescribed criteria, on the basis that, even if the customer or employer has specified or approved the design, it is the contractor who can be expected to take the risk if he agreed to work to a design which would render the item incapable of meeting the criteria to which he has agreed."(paragraph 44)

The Supreme Court held that the provision could be read in two ways: either as a warranty that the foundations will actually have a lifetime of twenty years, or as an undertaking to provide a design that can objectively be expected to have a lifetime of twenty years.

MTH were liable on either interpretation because the foundations neither had a lifetime of twenty years, nor was their design fit to ensure one.

The Court ultimately held that MT had warranted that the foundations would survive for twenty years or would be designed so as to achieve twenty years of lifetime. The fact that this was difficult or even impossible to achieve did not render this interpretation "improbable or unbusinesslike".

The fact that MTH had complied with an internationally recognised standard which proved to be wrong did not assist it. The Court held that obligations to (a) comply with a particular design, specification or standard and (b) to achieve a particular result are "not mutually inconsistent", even if there is an error in the standard which will prevent compliance with (b). In other words, the obligation to achieve the result overrides the obligation to comply with the standard.

The Supreme Court held that generally speaking a contractor is expected to take the risk if he agreed to work to a design which would render the item incapable of meeting the criteria to which he had agreed.

The standard was only a minimum standard and it was MTH's responsibility to identify where the other works needed to be designed in a more rigorous way; in other words, to go beyond the standard.

Nonetheless, the Supreme Court may have offered a saving grace by finding that the clauses setting out the defects liability period would have prevented E.ON from bringing a claim against MTH after 24 months, save where misconduct was involved. This was unable to save MTH as the damage occurred well within that period. However, this interpretation would have substantially reduced the effect of the warranty and would suggest a suitable compromise between commercial entities looking to achieve a mutually acceptable contract.

The lesson

The Judgment reiterates just how onerous fit for purpose obligations are, wherever they are in a contract. It also shows that fit for purpose obligations are not necessarily subject to less onerous express obligations in the contract and will be enforced even if they are difficult or impossible to achieve.

Who has to sign a s106 agreement?

Wed, 02 Aug 2017 11:00:00 +0100

The answer, I think, must be anyone who has an interest in the land and who the local planning authority would reasonably consider enforcing against.

I'm assuming here that the s106 is needed in connection with a planning application, to mitigate some otherwise unacceptable impacts of the proposed development. As such, it is important that the authority has done all that is reasonably necessary to secure the obligations – and that includes ensuring that the right people are on the hook. Let's also assume that the planning authority is not itself the landowner: that raises its own issues.

Section 106 itself does not say who 'must' sign a s106 agreement. It merely says that 'anyone with an interest in land' may do so. On the face of it, there is no legal requirement to bind in all parties who have interests in the application site.

Take, by way of an example, a situation in which land is leased to a long-established institutional tenant on a 999 year lease, with no option to break, and where the obligations to be secured by the agreement are payment of a contribution in instalments on commencement, and then on the fifth anniversary therof. If the authority understands the terms of the lease, and is happy that the tenant is good for the contribution, there would seem to be little benefit in insisting that an unwilling landlord also signs up. If the tenant were to assign, or sublet, then the new occupier would be bound as someone deriving title from the covenanting tenant. However, if the lease did allow for breaks, then there would be a much clearer argument for the planning authority to want the landlord on the hook, to ensure that future tenants were also caught.

Similarly, if a freehold landowner is signing up to obligations which will bite only once an existing building has been demolished, there seems little to be gained by insisting that existing occupational tenants sign the s106. It is unlikely that any liability will arise while they have an interest in the site, so (subject to the precise drafting of the agreement), they'd be off the hook before they were really ever on it.

In most cases, the situation can be resolved through open communication between the parties, and some pragmatism on what is achievable in the circumstances. Some situations could be resolved through the use of alternative means such as conditions. Local authorities must bear in mind their statutory obligation to work with the applicant in a positive and proactive manner "based on seeking solutions to problems arising in relation to dealing with a planning application".

Please do get in touch if you are currently tackling this issue or have an interesting example of how you have resolved it.

Is it game over for ground rent?

Tue, 01 Aug 2017 11:54:00 +0100

Recent Government proposals intend to put a stop to new build houses being sold as leaseholds. The Department for Communities and Local Government has also suggested that ground rents on flats could be cut to zero.

What has prompted these legal changes, and what effect might these proposals have on residential house builders and developers?

1. Background to changes:

Ground rent is a charge levied on leasehold properties, paid to the owner of the land on which the building sits.

Traditionally flats have been sold on a leasehold basis; however houses can also be sold as leaseholds. The effect is that the freeholder of the land can charge a ground rent, and the property reverts back to the freeholder at the end of the lease term.

Ground rent charges should be set out in the lease and are often relatively low. There may, however, be a provision in the lease for an increase at various stages throughout the term. For example, if a house or flat was sold on a lease term of 150 years, the ground rent lease clause may allow for an increase every 10 years.

Some leases provide for ground rent to double every 10 years. Whilst this may not be an issue in the early part of the term, it could potentially render the leasehold property unsaleable at a later date. By way of example, if the initial ground rent was £10 a year, and the ground rent clause allows the ground rent to double every 10 years, by the end of the 150 year term the leaseholder would be paying over £150,000 each year in ground rent alone.

Further to the financial burden, the increasing ground rent may also result in the lease being deemed an assured tenancy. Where rent exceeds £250 a year (or over £1,000 in Greater London), a lease will be classed as an assured tenancy. Assured tenancies are governed by the Housing Act 1988 which provides additional rights to landlords to evict tenants and to recover possession of the leasehold property before the end of the term.

2. Future for housing developers:

In addition to selling the new build flats or houses to individual purchasers, developers often sell the freehold land to ground rent companies who acquire sites for the purpose of receiving the income generated from the ground rent.

If ground rent is scrapped then there will no longer be any value in selling the freehold to ground rent companies. If this source of revenue for developers is removed, new build schemes may become less viable.

As part of most new scheme developments, developers are obliged to provide some affordable housing. Developers therefore have to juggle the profitability and viability of new build schemes. By removing ground rent revenue for developers, we query what affect this will have on the viability of new build schemes and whether there will be a knock on effect to the provision of affordable housing, which cannot be Government's intention.

Plainly there needs to be some reform on the levels of ground rents being charged to protect leasehold owners, as well as resolving the unintended consequence of creating assured tenancies, however this needs to be balanced with development scheme viability and ensuring that housing needs are met. We wait with interest to see how this balancing exercise is resolved.

Advertisement consent – five rules for retailers

Wed, 26 Jul 2017 12:30:00 +0100

1. Check whether you need to make an application for consent

Regulations provide that some advertisements are expressly excluded from the need for consent, some are automatically given deemed approval, and others must be the subject of a successful application to the relevant authority.

It is unlikely that a retailer's advertisement will fall outside the need for consent, unless it is within an enclosed space such as a shopping mall or covered shopping arcade (or in the case of certain signs displayed inside a shop).

In most other cases, it is worth checking the criteria for deemed consent.
For retailers, the most frequently used categories of deemed consent will be classes 4 (illuminated advertisements on business premises, including on frontages of businesses within a retail park) and 5 (other advertisements on business premises).

Both are subject to strict limitations, including controls on what information can be displayed on the advertisements, what size the advertisements can be and where on the building they can be displayed.

Other categories might also come to the rescue, such as those allowing name plates on business premises, posters in purpose built highways structures, advertisements on forecourts or development site hoardings.

Note that the Secretary of State can direct that the deemed consent provisions do not apply in certain areas.

If an application needs to be made, it should usually be made to the local planning authority. The authority will decide the application on the grounds of amenity and public safety and can grant the consent (with or without conditions – although see point 2 below), refuse the consent or decline to determine the application if they have recently refused a similar one. Similar appeal provisions apply as with planning applications. Notably, if no decision is given within 8 weeks, an appeal against non-determination can be lodged.

As long as the advertisement complies with the relevant regulations, no planning consent is needed for the display – although if the advertisement is to be attached to a listed building, listed building consent may be needed.

2. Remember the 5 year rule

If an application is needed, any consent granted will be subject to an express or deemed condition making the consent temporary in nature. If no express time restriction is given, the consent will expire after 5 years. It can then be renewed by a fresh application, if appropriate.

That said, regulations currently give deemed consent for the continued display of advertisements for which the permitted period of express consent has expired and for which the planning authority has not forbidden any further display of that advertisement, or refused an application for its renewed display.

3. Bear in mind the standard conditions

Even if you are relying on the deemed consent provisions, be aware that such consent is given subject to 'standard conditions'.

These conditions, in summary, require that:

(a) permission to display the advertisement is obtained from the landowner
(b) advertisements do not obstruct traffic signs, railway signals, or security/ speed cameras and do not endanger users of highways, railways or waterways
(c) the advertisement is kept in good repair so as not to harm the visual amenity of the site
(d) any hoarding or structure is kept in good repair so as not to endanger the public
(e) the site is left in a good state of repair if an advertisement needs to be removed

4. Beware 'special areas of control'

Some areas are designated as Areas of Special Control of Advertisements. In these areas, there may be different criteria for deemed consent and stricter control is exercised in order to protect visual amenity. In particular, the deemed consent for illuminated advertisements under class 4 does not apply in such areas.

Care should also be taken in conservation areas, AONBs, National Parks and the Broads, where rules may differ.

5. Note the risk of a discontinuance notice

Local authorities can require advertisements with deemed consent to be removed "to remedy a substantial injury to the amenity of the locality or a danger to members of the public". Many local authorities have produced supplementary guidance on what they consider to be appropriate design in their area.

Stay in your lane! How expert witnesses can stray away from their duty to the Court

Mon, 24 Jul 2017 10:08:49 +0100

In an earlier blog we discussed how this case reiterated the Court's reluctance to go behind commercial settlement agreements when a party seeks to recover them from a paying party. The Defendants' quantum expert spent time addressing the settlements in his evidence but, as the Judge noted, he also "did not propose or put forward figures that would have been a reasonable range for any of the settlements. This was at least in part because he was not qualified to give expert evidence on the reasonableness or otherwise of any of the settlements." The Defendants' quantum expert also sought to criticise the cost of legal advice obtained to settle claims. He considered that the "Claimants should not have paid more than £5,000 in lawyers’ fees per settlement." The Judge held that the quantum expert was "not qualified to express that opinion" and reached his own view on the matter, without expert input.

Similarly, when it came to the evidence of the liability experts the Judge gave greater credence to the views of the Claimants' expert, who had extensive first-hand experience in the field. Conversely, the technical expert called on behalf of the Defendants notably lacked experience in areas on which he sought to opine and relied on extracts from various published papers to attempt to make out his arguments. Crucially, the Defendants' expert had also failed to impartially assess the implications of fabricated documents that had been provided by his client's supply chain. The Judge commented: "I do not understand how the Defendants could maintain to trial the assertion that the documentation from the supply chain proved that the glass… had been heat-soaked when they should have appreciated that it showed no such thing".

The Judge remarked that it was quite unclear how the Defendants' expert "could, consistently with his duties to the Court, have failed to make plain his clear understanding that some of the documentation was fabricated and that, whatever else it showed, the documentation as a whole (on which he commented extensively) did not support his client's case". The judgement records that by 9 November 2016 at the latest, the Defendants' expert had been told by the lawyers that the documents were false. The Judge considered that the fact that the supply chain had provided fabricated documents was sufficient to at least "raise doubts" over other unverified documents. In such circumstances it was impossible to assume, based on the lack of clear and reliable evidence that the supplier had heat soaked the glass properly. Yet the Defendants' expert "clung to the assumption" and the Judge found that "it was neither expert nor rational for him to do so".

In another recent decision in which RPC acted for the Defendant (The Governors and Company of Bank of Ireland and ors v Watts Group PLC [2017]) the bank's expert's independence was questioned in even closer terms. The expert for Claimant was found to have "lacked realism", have been unreasonably intransigent and had attempted to mislead the court by the selective quotation from RICS guidance. The Judge in that case commented that he had never before "seen a Joint Statement between experts that contained no agreement at all", for which the judge held the Bank's expert responsible.

These recent cases highlight the importance of expert witnesses remaining within the confines of their expertise and providing independent views to the Court. Experts owe their duties to the Court rather than those paying their bills and the Court will not be assisted by experts advocating their client's case, particularly where the arguments are patently deficient.

What is "reasonable" when making a recovery?

Tue, 18 Jul 2017 11:57:39 +0100

In the recent case of 125 OBS Nominees (1) and anr v Lend Lease Construction (Europe) and anr [2017] Stuart-Smith J reiterated and expanded upon the principles of recovery developed in earlier case law.

The case, in which RPC represented the Claimants, concerned the widely publicised failure of numerous panes of glass on the facade of the building at 125 Old Broad Street, some of which fell into the street below. Both liability and elements of the quantum were in dispute. The failures occasioned losses to the Claimants including settlement payments made to tenants and third parties affected by the falling glass, the protective scaffolding that was erected following the failures and the subsequent reglazing works.

In his judgment, the Judge reiterated now well-established principles relating to the reasonableness of a settlement and went on to add:

The Court encourages reasonable settlements, particularly where strict proof would be very expensive;
The test of reasonableness is generous, reflecting the fact that the paying party has been put in a difficult situation by the breach;
Reasonableness is evaluated as at the time of the settlement;
A claim will generally have to be so weak as to be obviously hopeless before it can be said that settling it is unreasonable;
The evidential burden of proving unreasonableness falls upon the Defendants.

Applying those principles to the facts before him, the Court had no time for a forensic, retrospective audit of the initial third parties claims to assess their merits. The Judge took a commercial approach to assessing whether a settlement should have been made and whether the amount it settled for was reasonable; deciding it was not proportionate to test the merits of the claim as rigorously and forensically as if that particular dispute was before the Court. Contemporaneous evidence of an attempt to mitigate loss and reach a sensible commercial agreement in order to buy off risk was held to be sufficient and the Claimants put forward compelling evidence about the difficulties faced by them, their tenants and third parties due to the Defendants' breaches. The witness evidence documented circumstances where claims had been intimated but had been resolved through negotiation or management of the relationship. In this context, it was clear from the settlements that the Claimants did seek to recover from the Defendants that they were not weak or hopeless which made it easier to assess the reasonableness of the compromise.

This case reiterates the Court's reluctance to go behind commercial settlement agreements when a party seeks to recover them from a paying party. The paying party will need to demonstrate either that settling the claim at all, or the value at which the claim was settled for was unreasonable.

Complex contracts and intricate inconsistencies – a reminder of the court's approach to contractual interpretation

Tue, 18 Jul 2017 10:06:07 +0100

Complex contracts and intricate inconsistencies – a reminder of the court's approach to contractual interpretation

In the recent case of OBS 125 (Nominees 1) and anr v Lend Lease Construction (Europe) Limited and anr [2017] Mr Justice Stuart-Smith applied the principles of contractual interpretation to a construction contract consisting of multiple documents and which, the Claimants contended, imposed a number of discrete obligations on the Defendants.

The Background

The claim concerned glazing defects to the old Stock Exchange building in London. The Claimants (represented by RPC) contracted with the Defendants to undertake design and construction works to the building. Practical completion occurred in July 2008 and between September 2008 and July 2012, 17 panes of glass on the building failed with a number falling from the building. The cause of the spontaneous failures was established as the presence of Nickel Sulphide (NiS) and the building was eventually entirely re-glazed.

The Judgment is an informative compendium on NiS inclusions. For the purposes of this blog it is sufficient to note that the contract required the Defendants to use toughened glass which had been heat-soaked in accordance with BS EN 14179 (the 2005 Standard) with an extended holding phase of four hours (as opposed to the two required in the 2005 Standard).

The Contract

The Contract incorporated the JCT Standard Form Building Contract with Contractor's Design 1998 edition with substantial bespoke amendments and additional documents. It did not, however, contain a hierarchy of the documents. The relevant contractual terms are annexed to the Judgment.

The Dispute

The Claimants' and Defendants' contractual arguments are set out in detail in the Judgment but the main interpretation issues arising were:

Was the obligation to use toughened glass heat-soaked in accordance with the 2005 Standard additional to the other contractual obligations relating to NiS or did it qualify or supersede those additional obligations?
If the obligations were distinct, were there inconsistencies between them and if so, how should the court deal with these?

Scarcely preceding the reporting of the Supreme Court's decision in Wood v Capita Insurance Services Limited, Mr Justice Stuart-Smith relied on Arnold v Britton for a summary of the approach to be taken by the court when interpreting commercial contracts.

He recognised that it was not his place to add to the multiple statements of principle set out by the higher courts and reconciled the potential differences between the authorities as reflecting "the need to address the particular facts of the case being decided." He repeated the well-known summary of the court's aim to identify "what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in that contract to mean" and highlighted relevant factors as: the natural and ordinary meaning of the words; any other relevant provisions of the contract; the overall purpose of the words in question; the facts and circumstances known or assumed by the parties at the time the contract was executed; and commercial common sense but disregarding subjective evidence of any party's intentions. These factors are to be applied in an iterative way in no particular order and with the court able to repeatedly apply any or all of the factors it considers relevant.

Additional or inferior obligations

The Judge recognised that in complex contracts there are many reasons why multiple clauses or documents may cover the same points. He considered that "the reasons for this may vary from being accidental (as where a contract is compiled from various different sources or documents, more than one of which addresses a particular point) to deliberate (as where the parties have deliberately imposed multiple obligations upon one party in order to protect the position of the other)".

In applying the relevant contractual principles to the present case, Stuart-Smith J started with two of what he considered to be the principle clauses. Focussing on the natural meaning of the words and the syntax used, he identified that in clause 2.1.1, the Employer's Requirements and Contractor's Proposals were referred to separately with the Defendants being required to complete the works in accordance with each. This clause thus imposed distinct and separate obligations on the Defendants. In relation to clause 8.1.1, he identified no less than four discrete obligations regarding the goods and materials to be used.

Contractual inconsistencies

The Court of Appeal dealt with a contract which imposed several obligations which were arguably inconsistent or unequal in MT Hojgaard A/S v E.ON Climate and Renewables UK Robin Rigg East Ltd [2015]. Since the hearing of the current claim and handing down of the Judgment, MT Hojgaard has been heard by the Supreme Court. The Judgment is imminent but until then, the Court of Appeal's decision remains good law and was relied upon in the present case.

In MT Hojgaard, the court recognised that the obligation to comply with a particular standard would not prevent the contract from imposing, through the use of clear words, an additional obligation on a contractor to achieve a particular result. This is not uncommon in construction contracts. In the present case, the court had to consider whether the Defendants had agreed to comply with the 2005 Standard and had additionally warranted to provide a curtain walling system with a service life of 30 years and a design life of at least 30 years, using materials which were of good quality and appropriate for their purpose.

The Judge found no "intrinsic inconsistency" between these obligations. To the contrary, he found that the existence of a residual risk of breakage supported the "the commercial sense (or even necessity)" of including additional obligations. Applying the accepted residual risk rate of 1 in 400 tonnes, he held that had the glass been correctly heat-soaked there should have been none, one or a maximum of three to six breakages on the building. These possibilities were not inconsistent with a service or design life of 30 years.

In addition, the contract did not simply require the Defendants to heat soak the glass in accordance with the 2005 Standard. The parties had agreed to extend the holding phase from two to four hours. The scientific effects of this change were less important to the Court than that which it manifested about the parties' contractual intentions: the change was intended to increase reliability and reduce the residual risk.

Exclusion Clauses – a reminder that clear language is required

The 'Technical Clarifications' stated that until the end of the Defects Liability Period (DLP), the Defendants were responsible for replacement and installation of panels which failed due to NiS. The Judge did not agree with the Defendants that this meant the Claimants had accepted the risk of NiS after this period. He noted that the contract stated that the Claimants were responsible for third party risk after Practical Completion but these provisions were not sufficiently clear to exclude all liability for the Defendants in relation to NiS occurring after the DLP.

In any event, the Court held that the glass had not been correctly heat soaked. Even if an exclusion clause existed, it would not have saved the Defendants from the consequences of their breach of contract.

The importance of record keeping

The Judgment also reiterated the importance of good record keeping - particularly when the contract requires it.

The Defendants were required to provide documentation which evidenced that the glass had been heat soaked. There were clear gaps in the documents provided and the Court found that some of the documents had been fabricated. By failing to provide the relevant documentation, the Defendants were in breach of contract. The absence of contemporaneous evidence that the Defendants had complied with their contractual obligation was fatal to their defence.

Conclusion

Despite preceding the reporting of Wood v Capita, this case is an example of the literal and commercial approaches to contractual interpretation being combined, to an extent.

Mr Justice Stuart-Smith began by focussing on the literal and natural meaning of the provisions which guided him to the conclusion that the parties intended to impose multiple obligations on the Defendants. He then took an iterative approach of testing his conclusion against other provisions in the contract and found that the existence of residual risk (known to both parties at the time of the contract) had been mitigated by the inclusion of more onerous obligations. This conclusion was consistent with both the literal meaning of the words used and commercial common sense.

It is possible that the Supreme Court may find that in MT Hojgaard that the court relied too heavily on the commercial intention of the parties, to the detriment of the natural meaning of the words. If this is correct, both that and the present case would appear to demonstrate that although the literal and commercial meanings are "two tools forming part of the same approach", the initial step and determinative factor to establishing the parties intentions will be the literal meaning of the words. Matching these to commercial common sense is simply a bonus.

Cherry picking in an adjudication is fine – as long as you're the Referring Party

Mon, 03 Jul 2017 10:12:48 +0100

Indeed, the Courts have remarked that such practice is not only permissible but should actually be encouraged (see Coulson's decision in St Austell Printing Company Ltd v Dawnus Construction Holdings Ltd [2015] EWHC 96 (TCC)). The recent decision in Mailbox (Birmingham) Ltd v Galliford Try Building Ltd [2017] EWHC 1405 (TCC) by the same judge shows that the same cherry picking approach isn't necessarily open to the Responding Party and embarking on a strategy of asking an adjudicator to consider some but not all of your potential defences is high risk.

Mailbox and Galliford Try entered into a building contract based on an amended JCT Standard form. Part of the works being undertaken by Galliford Try were significantly delayed beyond the Completion Date and Galliford Try applied for a number of extensions of time ("EoT"). Some of these were granted but Mailbox sought to deduct liquidated damages ("LADs") from Galliford Try for the balance of the delay to Sections one to four of the Works.

In 2016, following termination of the contract, Mailbox commenced an adjudication seeking declarations as to its entitlement to deduct LADs for the full period for which the Works were delayed beyond the adjusted Completion Dates. In its Response, Galliford Try did not seek to bring its full case but asked the Adjudicator only to consider three Relevant Events which affected only Sections three and four of the Works. The Adjudicator made his award in November last year and found that Mailbox were entitled to substantial LADs (some £4.2 million) whilst also stating in his decision that he had not considered any Relevant Events beyond those which Galliford Try's Response relied on.

Galliford Try sought to resist enforcement of the decision but their defence was dismissed. Fast forward to April this year and Galliford Try sought to commence their own adjudication on the lawfulness of Mailbox's termination. Importantly, Galliford Try also argued that the Adjudicator would need to consider their entitlement to an EoT as part of the process in reaching his decision. In response, Mailbox started Part 8 proceedings seeking declarations including that its entitlement to recover LADs had already been decided by the First Adjudicator and hence no subsequent Adjudicator could have jurisdiction to decide Galliford Try's entitlement to an EoT.

In finding in Mailbox's favour, Coulson held that it was "beyond argument" that Mailbox was entitled to retain the full amount of LADs awarded by the first adjudicator unless and until the substantive dispute was decided by the Court. No subsequent Adjudicator had jurisdiction to grant any EoT to Galliford Try that cut across such entitlement. This was notwithstanding that Galliford Try had elected only to ask the First Adjudicator to consider three Relevant Events. The dispute that had crystallised between the parties and been referred to adjudication included all time related issues and, consequently, all of Galliford Try's entitlement to an EoT. Galliford Try had taken a tactical decision not to raise its full argument with the first Adjudicator but it could not preserve the right to seek to raise alternative Relevant Events in subsequent adjudication proceedings.

Coulson's decision makes perfect sense; it can't be for a Responding Party to try to limit the scope of a dispute referred to an Adjudicator in the hope they might live to fight another day. That said, the decision is a useful reminder of the imbalance between parties to an Adjudication and the tactical benefits that the process affords to the Referring Party. When it comes to defending an adjudication, whilst being careful not to lose credibility, it appears that the 'kitchen sink' approach is preferable to picking cherries.

Even More Challenging Times – 5 More Risks Following The Grant of Planning Permission

Wed, 14 Jun 2017 11:56:00 +0100

Risks one-five can be found here.

6. Taking into account inaccurate information

Local authorities must undertake a tricky balancing exercise when determining planning applications. Whilst courts tend to be reluctant to interfere with that process, authorities should be able to show that they have performed their obligation properly and not made an irrational decision. Where members have been misled by inaccurate information submitted by the applicant, or by misleading wording in an officer's report, this can cause doubt on the rationality of their decision.

7. Prematurity

Sometimes development plans can be delayed or slow in coming forward and an applicant may want to get on with his development without waiting for particular policies to get through the examination and adoption stages. There is nothing inherently wrong with that, but steps should be taken to show that granting permission will not prejudice an important emerging policy. The weight to be given to such emerging policies will depend on how far through the preparation process they have progressed at the relevant time.

8. Incorrect information on an application form

Whilst completion of the application form may seem like a simple box-filling exercise, there is plenty of room for mistakes to be made or misleading information to be included. Legislation specifically provides that local planning authorities should not determine applications which do not comply with the requirement to give certain information. A particular area of concern is often the ownership certificate, but other areas such as references to trees and access points can also give rise to challenges.

9. Failure to follow a committee's recommendation

Committee resolutions are often quite clear on the scope of the remit they are giving to officers when it comes to the actual grant of planning permission. Whether this is by imposing a deadline or by reference to a particular s106 obligation or condition which they want to see secured, officers must be careful to ensure that they are acting within their authority at all times. Sometimes officers will have a level of flexibility, but any variance from the committee resolution will be obvious to third parties so it pays to be careful.

10. Failure to consider the likely significant effects of the development on the environment

Environmental impact assessment regulations set out when environmental effects must be taken into account in the determination of planning applications. For some types of development, this is an absolute requirement and for others there are threshold limits. The situation can be unclear when it comes to variations to existing planning consents, or on applications for reserved matters, although the law lays down what requirements must be met. Failure by a planning authority to take into account an aspect of the scheme at the EIA screening stage can mean that important issues are not considered in the determination of the resulting application – a ripe area for third party challenge.

As before, if you would like to discuss any of these issues in more detail, please do get in touch. As lawyers, we can review application material and assist with the drafting of reports and more to check that everything is in the best order to minimise risks of challenge.

Challenging Times - 5 Risks Following The Grant of Planning Permission

Tue, 06 Jun 2017 10:30:00 +0100

Some of the issues are the subject of ongoing or recent caselaw. Some can be covered off quite quickly by being aware of the issue and making the authority's position clear in a committee report, for example.

In the first of our 2 part blog, we investigate five of ten common risk areas which applicants and authorities should be alive to during the application process.

1. Failing to give reasons

This is a complex issue and the relevant case law can appear inconsistent. The Supreme Court is expected to tackle this issue soon but, in the meantime at least, local authorities should consider giving full reasons for granting consent if they are deciding against a planning officer's advice, there is a consistency issue or the application site is in the green belt or an AONB (or similar designated area). This is an area of law to keep an eye on.

2. Misapplying a central or local planning policy

The law requires decisions to be made in accordance with development plan policies unless material considerations indicate otherwise. One of those considerations is the NPPF (National Planning Policy Framework). The way in which the policies in the NPPF sit alongside inconsistent policies in a local plan is the subject of a significant number of third party challenges.

3. Failing to consult with a statutory consultee

Local authorities are required to consult certain statutory bodies when they receive planning applications, and if those bodies make relevant representations then those points must be taken into account. A planning officer should be clear in his or her report to committee that this consultation requirement has been met, and should clearly and accurately set out relevant representations so that they can be factored into the decision making process.

4. Bias or predetermination in a committee meeting

This is a common concern, and a far-reaching one. Local authorities must act fairly, and be seen to have done so, although the law is now clear that members can campaign or take a view on an issue whilst considering an application. Most local authorities have standard rules which exclude members from voting on matters which they have certain interests in, and of course they must properly listen to and consider all relevant information before making their decision.

5. Failing to correctly publicise a planning application

Planning authorities are under strict regulatory obligations as to who they have to notify of a planning application, and when. Those rules do not always require letters to be sent to neighbours – sometimes a site notice will do. The law also deals with the situation in which a site notice is removed or de-faced. Whilst the law allows for a minimum period of 21 days for communities to make representations, as the authority is required to balance all relevant material considerations, they should consider any relevant points made right up to when they make their decision.

Stay tuned for a further five issues in an upcoming blog post – you can subscribe to our feed to make sure that you are alerted when it goes live. In the meantime, if you would like to discuss any of these issues in more detail, please do get in touch. As lawyers, we can review application material and assist with the drafting of reports and more to check that everything is in the best order to minimise risks of challenge.

Pre-loading the pre-app?

Wed, 24 May 2017 11:00:00 +0100

Many will say that the system is applied inconsistently across the country: some authorities provide more constructive advice than others. Nowhere is there any guarantee that a smooth ride through the pre-app system will result in a similar passage through the formal application process. The pre-app process will only give an indication of the view of whichever officer dealt with it on the day, although it should later be taken into account as a material consideration.

To make the most of the process, a lot of work usually needs to be done by the applicant's professional team to prepare for the pre-app stage. That helps applicants to really tackle particular issues with the authority and hopefully gain the confidence to progress.

In situations where the authority's validity requirements are unclear, or where there is a specific concern over how a local policy is likely to be applied there can be real benefits in obtaining some early advice. Where time constraints allow, this can front-load the process meaning that an application is more likely to be validated swiftly once it is submitted.

Where there is a high chance of refusal, potential applicants can re-assess their proposals before committing fully to the process. For larger applications, issues such as community and stakeholder engagement and the benefits of planning performance agreements can be discussed with a view to getting into the best possible shape once the application is on the go.

Certainly there will be cases where a tweak made after a pre-app meeting could mean the difference between refusal and consent. A failure to tick one box might otherwise have meant a significant delay in getting an application validated, or worse still a last minute refusal generating a need to start again. In those cases, the initial cost of the pre-app process could easily save both time and money down the line.

On the other hand, such is the take-up of this offer that potential applicants have to wait several weeks for their pre-app meetings with some authorities, which could risk them falling foul of contractual obligations for the submission of planning applications by given dates. Perhaps there is a cautionary tale to take care over the drafting of such obligations, now that the pre-app stage is increasingly used.

As ever, the process is a good one when it works. Even being able to recover the cost of the service, some authorities are under significant staffing constraints making it hard for them to respond as they might wish.

Applicants should be cautious about relying on pre-app advice if there is a lengthy delay between that and submission of their planning application. In that time, local policies or central guidance and priorities may have changed, or other nearby developments come forward which change the way in which the applicant's proposals will be viewed.

Applicants should also be aware that pre-app information could be made available under a Freedom of Information request. Further, with a view to greater transparency, some authorities will publish the pre-app information online along with all other material once a formal application is submitted.

You can't park there!

Wed, 17 May 2017 11:30:00 +0100

On smaller residential schemes around London, planning consent refusals are often down to parking issues. Where a developer requests planning permission for the conversion of flats, consent is often only granted on the basis that the developer signs up to a s106 agreement agreeing that:

the new occupiers of those flats will not be allowed to apply for parking permits; and
obliging the developer to put such restrictions in a covenant on the leasehold titles.

Since a 2013 unreported Westminster case there has been significant doubt about the lawfulness of those obligations. In that case, the judge held that such obligations did not fall within the strict terms of s106 Town and Country Planning Act 1990 and therefore could not be enforced against successors in title. Some developers have (before and after that case) nonetheless been willing to agree to those obligations just to unlock their planning consent. For both the local authority and the developer that is a risky business, as it leaves the consent open to challenge on the basis that the restriction has not been secured in perpetuity, leaving a risk of existing parking pressures being exacerbated – and a disgruntled community of potential challengers.

In my experience, there has been some inconsistency in the way in which the Westminster decision has been taken on board by the London boroughs but it is now common to see specific reference in 's106 agreements' to s16 Greater London Council (General Powers) Act 1974. This legislation offers a much wider remit for securing obligations that run with the land than the narrow confines of s106. Whilst s106 only allows you to enter into obligations which require sums of money to be paid to the authority or relate specifically to the development or use of the relevant land, s16 covers all obligations made 'in connection with' the land. It is much easier to see that restrictions on the use of the highway and the imposition of title covenants are 'connected to' the land.

The recent case (R (oao Khodari) v RBKC Council and Cedarpark Holdings Inc [2017] EWCA Civ 333) makes it clear that such obligations can be entered into and enforced against successors in title if they are made under s16, but not if they are made only under s106.

This case did not explore the position outside the geographical remit of Greater London.

It will be interesting to see if s16 becomes more widely used for other obligations which do not fit squarely within the letter of s106 – this piece of legislation is often criticised for being unduly restrictive so we may see the options for securing developer covenants increasing.

Restrictive Covenants: Public Policy v Legal Obligations

Fri, 12 May 2017 12:00:00 +0100

The development, near Maidenhead, consisted entirely of social housing. The land was subject to a restrictive covenant prohibiting building in favour of neighbouring land owned by a children's cancer hospice. Millgate was in full knowledge of this restrictive covenant, but continued with the development regardless. Once the development was completed, it applied to the Upper Tribunal to have the restrictive covenant modified or discharged.

Unsurprisingly the Hospice contested the application, arguing that the development adversely affected their land and did not afford their patients the privacy and seclusion which had been intended when the hospice was built (some of the gardens on the development backed onto the hospice, and it could be clearly viewed from some of the new properties).

The Tribunal agreed with the Hospice that the covenant did indeed confer a substantial benefit on them in the form of the privacy and seclusion it afforded.

Nevertheless, the Tribunal ruled in favour of Millgate. The overriding factor in its decision appeared to be public interest, specifically the need for social housing at a time when there was a housing shortage. It also noted that the development had already received planning permission (to which the Hospice had not objected at the time), and that this planning permission had been granted contrary to both the development plan and the green belt status of the land, suggesting that the public interest of social housing was also an influential factor for the planning inspectorate.

The final consideration of the Tribunal was whether the breach of covenant was capable of remedy via compensation. In this instance it considered it was, and awarded the Hospice £150,000 for the purpose of planting trees and other landscaping to afford the Hospice the privacy and seclusion the restrictive covenant had originally provided.

The Tribunal however made this decision with a word of warning – this should not be seen as permission for developers to "deliberately flout their legal obligations". Whilst the decision may represent a positive outcome for developers, the decision appears to have strongly turned on the fact that social housing was involved, and should be treated with caution rather than as a precedent for modifying or discharging restrictive covenants.

EIA – a new role for the planning system in considering the health impacts of development?

Wed, 10 May 2017 11:30:00 +0100

For some years, applicants for EIA development have had to consider the likely significant effects of the development on 'population' – usually covered primarily in a "socio-economic" chapter within the environmental statement. In practice, this treatment of socio-economic issues has varied significantly. Some have argued that EIA does not currently sufficiently cover the impact of developments on human health and the quality of life, health and wellbeing, and that much more could and should be done by the planning system in this regard.

Applicants will, once the new Regulations are in force, be specifically required to assess the direct and indirect significant effects of the proposed development on "population and human health". To understand this, it is perhaps worth recalling the WHO definition of "health" which refers to "complete physical, mental and social well-being". To date, socio-economic chapters have tended to focus on issues such as the generation of jobs and the provision of school places and increased public open space, so there would seem to be a shift in emphasis here, even though there is no specific UK guidance on what precisely should be considered under this new "health" umbrella, and how potential impacts should be assessed.

An obvious factor for developers to consider under this new "health" umbrella is the availability of GP surgeries etc - often a factor which raises objections from existing communities who feel that their area cannot bear any population increases - but what about the impact of social isolation on mental health or how the design of buildings can ensure appropriate temperature levels in new homes? The range of issues to be covered by is seemingly vast.

Has the planning system already got this covered? Health Impact Assessments are specifically required by many local authorities, as are transport assessments which will look at matters such as walking distance to public transport and the promotion of cycling over car use. Air quality environmental statement chapters already consider the impact of air pollution from roads and contaminated land. Daylight, sunlight and overcrowding should already be being considered too.

Even if it is already all in the application material somewhere, I see no harm in making health a specific EIA consideration. This should give confidence to stakeholders that the issue of human health has been considered holistically, and act as a focal point for interested parties who might otherwise be faced with considering a number of separate documents to be sure that they have the whole picture.

That said, the new EIA Regulations are likely to lead to more front-loading of the assessment process but possibly also in fewer full assessments, so it remains important that these issues can be dealt with elsewhere.

Please do get in touch if you would like to discuss this or the other changes brought about by the new EIA Regulations in any further detail.

Reining back from last orders - The Protection of Pubs: an update

Tue, 02 May 2017 15:00:00 +0100

As explained in our earlier blog post the Bill originally aimed to take pubs out of the use classes order, meaning that any change of use would require planning permission.

The final provisions do not go quite that far. 'Drinking establishments' will retain their classification as an A4 use but regulations must be passed to:

remove the existing permitted development rights which allow changes of use from drinking establishments to other uses; and
remove the existing permitted development rights which allow for the demolition of a building used or last used as a drinking establishment (in whole or in part)

Those regulations must also bring in new permitted development rights allowing changes of use from drinking establishment to mixed drinking establishments and restaurants. This will allow pubs to extend their food offering (unless there is an article 4 direction or planning condition in place which prevents this) but any other change of use will now require planning consent, regardless of any Assets of Community Value (ACV) designation.

Those regulations must be made as soon as reasonably practicable. We are expecting them by July.

Whilst the provisions have changed slightly, this is a big win for those who are seeking to protect pubs.

Top Tips for Commercial Tenants – Lease Expiry

Thu, 27 Apr 2017 12:00:00 +0100

1. Strategy – consider your end of lease strategy early, 18 months prior to the lease end date or a break date is a decent window to begin to consider the needs of your business and how you are using your space. Do you need more space/less space/different space? Can you repurpose the space you're in or do you need to find alternative premises? Start thinking about these questions early so that your end of lease strategy is established in good time prior to the end of your lease.

2. Break dates – in the event that your business needs have changed and you want to bring your lease to an end early, consider whether you have the option to break your lease before the end of the term. Your lease will set out the break notice conditions which usually include a requirement to give the landlord 6 months' notice (and sometimes up to 12 months) that you intend to exercise your right to break the lease. Prepare for this in good time and get the notice right. Even small mistakes can make notices invalid.

3. Negotiate – even if you do not have a break right, you may still be able to negotiate a deal with your landlord. The landlord may be willing to consider accepting an early surrender of the lease, or they may have alternative premises which may suit your needs better.

4. Statutory Protection – Consider whether your lease is protected by the Landlord & Tenant Act 1954 which gives you security of tenure. If so, you may not want to relinquish that protection too easily, especially if the landlord might be looking to redevelop the premises in the near future as, in certain circumstances, you may have the right to receive compensation. This is a discreet area of law and it is advisable to obtain specialist advice if this applies to you.

5. Dilapidations – at the end of a lease term there will almost always be some element of dilapidations. Consider the following:

• Do you want to carry out the dilapidations works yourself in accordance with your lease obligations?
• Are you happy for the landlord to carry out the works once you have vacated? Whilst this removes the burden of carrying out the works during the term, it also gives you less control over the process and the landlord can seek to recover loss of rent for a reasonable period when the works are being carried out.
• What are the landlord's intentions for the property? There may be ways to cap your dilapidations liability in certain circumstances.

Most importantly, try to engage with your landlord and dilapidations professionals at an early stage to reach the best deal for you and your business.

Let there be light

Wed, 19 Apr 2017 14:30:00 +0100

WELL Standards

The International WELL Buildings Institute have sought to create a comprehensive approach to health and well-being, identifying 7 key concepts which, in addition to light, include air, water, nourishment, fitness, comfort and mind.

Focusing on light, the WELL Building Standard provides "guidelines that minimise disruption to the body's circadian system, enhance productivity, support good sleep quality and provide appropriate visual acuity". The WELL certification process will consider a building's internal lighting system, access to natural light, size of windows and reflectivity of surfaces within the building, amongst other factors.

Daylight & Sunlight Reports - Planning

Daylight, sunlight and overshadowing reports are used in the context of planning applications. Whilst these report relate to light, they differ from rights of light in general, and the remedies available when they are infringed, which fall outside the planning process. They are private rights and the planning system is more concerned with public interest.

For example, when a developer is seeking planning permission for a new tall building, the impact of the proposed development on the daylight and sunlight within the surrounding properties, and the extent to which the proposed building will overshadow them, will be considered as part of the planning process. Most local planning authorities adopt the recommendations of the Building Research Establishment (BRE) in determining those factors.

However, regardless of daylight/sunlight tests having been met and the proposed development being approved through the planning process, neighbouring owners may still go after the developer if they suffer an infringement to their rights of light.

WELL Standards v Daylight/Sunlight & Rights of Light

The WELL Standards are commendable in seeking to improve the quality of, and access to, light in buildings, with the focus being the end users working inside that building.

In contrast, daylight & sunlight reports, together with rights of light in general, tend to focus on the impact to the neighbouring buildings surrounding the development, as opposed to the quality of light within the building being developed (although in some cases the planning authority will want to consider this too).

This raises a number of questions, the answers to which will become clearer as WELL Standards, in whole or part, are adopted more widely:

• will WELL Standards start to be factored into the planning process and will planning authorities start to make it a condition that new developments comply with the WELL Standards (instead of or as well as BREEAM standards)?;

• will planning authorities take into consideration situations where a proposed new development could damage the WELL Standard of a neighbouring building?;

• will WELL accredited buildings be able to block proposed nearby developments if the new development will have such an impact on the daylight & sunlight in their building that they will lose their WELL accreditation?; and

• will further remedies become available for damages to WELL accreditation, in addition to general damages for rights of light infringements?

Whilst this may not happen immediately, with investors, developers and occupiers becoming more alive to the issues we look forward to seeing how WELL buildings fit in to the scope of planning and the world of rights of light in the future.

Cinema Wars: The Courts Awaken

Mon, 10 Apr 2017 11:30:00 +0100

The most recent was a case (VUE Entertainment Ltd v City of York Council CO/3840/2016) brought by VUE Entertainment Ltd challenging City of York Council's decision to grant consent for a change in the number of screens at a cinema. Consent had already been given for a leisure and entertainment scheme and the plans for that development showed a 12 screen cinema. The permission was granted subject to a clear condition requiring the development to be built out in accordance with the approved plans. An application was subsequently submitted under s73 Town and Country Planning Act to 'vary' that condition, to amend the relevant plans to show a larger 13 screen cinema.

VUE challenged the decision as it was worried about the effect the larger scheme would have on its own nearby cinema. It argued that the extra screen and therefore the increased capacity of the consented scheme was a fundamental change which should not have been dealt with under the s73 procedure.

The Court held that it was necessary to look at the permission as a whole to determine that point, but that in any case the terms of s73 did not restrict consideration of a quite significant change, despite previous case law deciding that the precise terms of permission should not be altered by a s73 application. In this case, there was nothing in the terms of the existing planning permission which limited the size of the cinema to 12 screens and there was no planning bar to the Council allowing the change.

The earlier case (R (C Hawksworth Securities Plc) v Peterborough City Council CO/5715/2015) also featured risks of competition and scheme viability. There, the claimant was a promoter of a regeneration scheme which relied on its proposed cinema as anchor tenant. It challenged the grant of consent for the redevelopment of a nearby shopping centre on the basis that the plans also included a cinema, to be operated by Odeon.

The court held that the planning authority was under no express or implied duty to consider the merits of the regeneration scheme when determining the shopping centre's application. The shopping centre scheme was not inconsistent with the Council's development plan, which did not require one scheme to be prioritised above the other for fear of competition. This was despite the regeneration site being identified in the development plan as an area in need of development and the planning authority having been fully aware of the proposals. As it was, the shopping centre planning application was submitted first, and fell to be determined first (albeit at the same committee meeting as the regeneration scheme): its refusal was not justified by anything in the regeneration scheme proposals.

In the absence of a specific policy, the role of the planning system is somewhat limited to protect existing operators or promoters of competing schemes. Given the primacy of planning policy in such matters, there is perhaps a cautionary tale in these cases about engaging with the policy making process early to ensure that your interests are protected as far as possible.

Permissions in Principle: a brave new planning world?

Thu, 06 Apr 2017 10:30:00 +0100

On 16th April, The Town and Country Planning (Brownfield Land Register) Regulations 2017 will come into force. These regulations provide that by the end of the year each local planning authority must have made and published a register of previously developed land in its area which:

• has an area of at least 0.25 hectares or is capable of supporting at least 5 dwellings;
• is suitable for residential development;
• is available for residential development; and
• on which (in the opinion of the planning authority) residential development is achievable within the following 15 years.

Such registers must then be maintained and reviewed at least every year.

The registers will be in two parts – part 2 being land which not only meets the criteria set out above but which the authority also allocates for development. On being included in part 2 of such a register (and in certain other scenarios), land will automatically be granted "permission in principle", establishing the suitability of the land for housing-led development for the number of dwellings to be set out in the register. The related Town and Country Planning (Permission in Principle) Order 2017 will have come into effect the previous day, 15 April 2017. An application for approval of technical details - akin to a reserved matters application following a more traditional outline consent - can then be made within a 5 year period.

Looking at the criteria for including land within a brownfield land register, the meaning of 'available' is set out within the Regulations and requires the landowner to have expressed an intention to sell or develop the land. Whilst that 'availability' test could in itself cause confusion and narrow the playing field, it is the 'suitability' test that might cause the most head-scratching.

To fall within this criteria, the land must either be allocated or already benefit from planning permission for residential development or, in the opinion of the planning authority, be appropriate for residential development having regard to any adverse impact on the natural environment or the local built environment (including on heritage assets); any adverse impact on the local amenity which such development might cause for intended occupiers of the development or for occupiers of neighbouring properties; and any relevant representations received.

For sites that are not already allocated or benefit from consent, it is hard to see how a planning authority could sensibly form a view on whether land is suitable for residential development in the absence of some fairly significant consultation and environmental studies being carried out. Indeed, if the residential development would normally attract the need for an environmental statement, the authority cannot enter it into part 2 of the register without having seen at least enough information to provide an EIA screening opinion.

With this is mind, is it likely that sites will be added to part 2 of a register if they are not already 'in the system' and some way through the outline planning application process? It was hoped that the permission in principle regime would level the playing field and help with the funding of sites at an advanced stage of the planning process, by giving some certainty that consent would be forthcoming. However with all things considered will there be many sites for which a permission in principle is of real value? We'd love to hear from you if you have a site which you think might benefit from these new provisions.

MIPIM: 10 things we learnt about you

Fri, 31 Mar 2017 14:12:51 +0100

1. Prepare and plan well in advance: whilst it is important to keep some diary slots free for chance meetings (and to maintain your sanity – Cannes is too beautiful not to allow yourself half an hour for a walk away from the crowds), it is also worth investing time checking the twitter feeds and websites of those companies that you'd like to meet up with and getting in touch with them early – most advertise their attendance and you want to beat the rush on their diaries. There are also a host of pre-MIPIM events held in the preceding weeks which we found invaluable for picking up tips and getting to know some other people who would be in Cannes.

2. Ask new contacts if they are hosting any events which you could attend: If you are hosting an event, expect the invite to be returned. There is no harm in touching base with your contacts in the lead up to check whether they are attending your event and to see if they have their own event which you can go along to.

3. Get yourself on the list: When attending pre-MIPIM events, or even during the first few days being there, it's worth asking contacts what other events they are attending to see if you can wangle an invite along to those too – especially to that elusive boat/pool party (you usually can!).

4. Don't be afraid to do things differently: we had a great time meeting people at lunch, dinner and drinks receptions but we also heard great feedback about smaller, more focused events and more formal meetings away from the most frequently used bars, cafés and restaurants.

5. Add photos to your business cards: many people commented on what a good idea it was, and we agree. It makes it much easier to remember who is who after a full day of hearing new names. Once you have exchanged cards it is helpful to quickly note on it which event you were at when you met and anything specific you spoke about, it makes follow ups that much easier when you get home.

6. Divide and conquer: we found that it was really helpful to turn up to some events with a colleague, both in terms of showing breadth of our team but also because it makes walking into events a bit easier, but at the same time more can often be gained by splitting up and comparing notes at the end. Following up with a 'I must introduce you to my colleague' email is a perfect excuse for setting up a meeting at a later date too.

7. Break your new shoes in and take plenty of blister plasters: we had heard many times over that we should take flat shoes rather than attempting all the walking in heels, but not one person warned us that by the end of the week walking barefoot or in battered old trainers was the only credible option for one of us (we'll leave you guessing as to which one...). Yes, we should have known better.

8. Double-check your accommodation: we heard many stories about double bookings, wrong dates and the like. It is also worth checking that (if you're staying in an apartment) there will be enough keys to save you needing to know who is where at all times.

9. Cannes it be that hot? Whilst we lucked out this year with the sun, remember it is still March and when the sun drops there's a chill in the air. Pack layers, including smart jackets (the industry is still pretty "business" formal), something colourful to stand out from the sea of navy, and a brolly just in case!

10. Follow up: a regroup back in the office as soon as possible during the following week to arrange who is following up with who avoids awkward doubling-up or anyone getting missed off the list.

Engaging with Development – do we always know what we need?

Wed, 29 Mar 2017 15:47:18 +0100

Whilst that sounded odd at first, I could see his point, illustrated brilliantly by an example of people voting for the promise of lower taxes despite wishing that infrastructure funding would come forward.

If we are not engaged with a plan or strategy that works for us and we believe will be delivered (if not in our time then for future generations) we are less minded to think about the "greater good" and act collaboratively, and more likely to rebel. Just look at some of the recent 'unexpected' election results in the UK and elsewhere.

From my position as a planning lawyer, often working with developers on residential-led schemes, it made me think about how public engagement is sought and encouraged.

With developers being alive to really positive issues such as place-making, promoting health and well-being and sustainability, is more/better engagement the key to getting greater public backing to development? If so, whilst this is and should certainly be done at the individual scheme level, talk in this breakfast event was of a much larger, more strategic position, with cities having 50 year plans highlighting not only the new high-rise development which might be needed to meet future (if not current) demands, but also the protection of parkland and the historic places of interest that make an area distinct.

The panel commented that the message should be that "we're all in this together". If everyone had confidence that there is something in the plan for them – whether it be the chance of a better education or other opportunities – shouldn't it be easier for a 'well-tempered' city to meet expanding needs?

The need for community involvement and public consultation will not be new to developers or local authorities of course but it is interesting to think about the different levels at which engagement could occur. Do we have too many layers of government? Are neighbourhood plans helping to achieve greater engagement? What about regional strategies? All interesting questions which I am grateful to ULI for bringing back to the front of my mind.

Rent reductions in Side Letters: do they work?

Wed, 29 Mar 2017 10:01:41 +0100

Whenever terms are agreed between parties the courts are keen to ensure that the details of these are not unconscionable. Penalty clauses are not looked on kindly and whether or not a clause is a penalty is decided by determining whether the consequence of that clause, and the remedy to the innocent party, is out of proportion.

In many lease agreements, often in retail, a personal rent concession or reduction is agreed and is contained in a side letter. This has the benefit to the landlord of securing the desirable tenant and also increasing the attractiveness of the wider shopping area, whilst still ensuring that if the lease is passed on to a less enticing brand, the landlord is not stuck with a lower rent. This is not just important for the lease itself but also to ensure that other rents within the area are not set using the lower rent as the compoundable evidence.

It is also common to ensure that these arrangements last so long as the "good" tenant complies with the other terms of the lease. This is unfortunately where such arrangements may become unstuck. A recent High Court decision has held that an arrangement to terminate the side letter and revert to the higher rent was a penalty and therefore potentially unenforceable.

It is reasonable for a tenant to expect consequences where it breaches the covenants in its lease. However, where a breach results in fresh obligations on the tenant the law will consider the proportionality of those obligations. If these result in a benefit to the landlord which exceeds the remedies normally envisaged for such a breach the court will not enforce these obligations.

In this case, the rent reduction could, potentially, be terminated even for a minor breach. The minor breach could result in a new obligation to pay a higher rent than had been originally agreed. This minor breach could therefore result in a major windfall of an increased rent for the landlord. The court held that this would be out of proportion to the landlord's interest in ensuring that the tenant did not commit the minor breach and, therefore, such an arrangement was penal in nature.

This outcome protects tenants who would not expect a higher than agreed rent to be payable as a result of what they might consider to be an irrelevant and easily rectifiable breach. On the other hand, if the tenant repeatedly commits serious breaches of the lease then it becomes a less desirable tenant to the landlord, who will not want to allow it valuable concessions.

It is important, therefore, to consider these arrangements carefully. Although the courts are reluctant to interfere in the freedom of the parties to agree their own terms, it will deem these clauses unenforceable even when agreed between properly advised parties of comparable bargaining power.

What chance is there for developers railing against Stamp Duty Land Tax

Tue, 28 Mar 2017 13:30:00 +0100

Like most taxes, SDLT is unpopular. It is a complicated system open to challenge and is particularly difficult for homeowners struggling to afford ever increasing housing prices.

Developers and investors are also frustrated by the system particularly after the changes introduced in 2014-2016. These saw rates jump from 5% to 10% for properties over £925,000 and an additional 3% levy for additional property purchases (not to mention the flat rate of 15% where companies acquire residential property over a value of £500,000).

It seems that, having so far tolerated these changes, major property developers and housebuilders are fighting back by preparing research they hope will prove to the Chancellor that SDLT needs to be reduced as part of the autumn budget.

Developers argue that SDLT is one of the major factors in deterring development – particularly for those operating in London and the South East where property values are increasingly exceeding £925,000.

Whilst the position of developers is understandable (it is clear that the increases at the higher end will represent a significant and off-putting additional cost for buyers) it is also hard to see how they will convince the Government to change the regime.

The purpose of the changes in 2014 was to encourage buyers at the lower end of the market by reducing the amount of SDLT that was payable – funded by increasing the amount of SDLT payable at the higher end. A change to reverse this would be unpopular with the general public who would see the wealthier minority benefitting at the cost of the poorer majority.

In addition, it is clear that the changes to the regime have financially benefitted the Government – figures from HM Treasury show that SDLT revenues for 2016-17 are anticipated to reach £8.3bn, £1.4bn of which will be funded through the 3% surcharge.

This is forecasted by the Office of Budget Responsibility to increase to £13.1bn, £2bn of which will be funded through the 3% surcharge by 2021-22.

Developers will likely argue that this financial windfall can be achieved by building more stock to generate SDLT through volume rather than high rates, however despite repeated assurances that the Government is looking to increase and speed up the delivery of new homes through changes to the planning system, it is hard to see what incentive there is for the Government to gamble on developers building more stock particularly when coupled with the fact that the current regime is already generating a solid and steady income.

It will be interesting to see what research the housebuilder and developer group provide, but it is clear that they have an uphill battle on their hands and probably the hardest sell they will ever face.

Planning to Protect Pubs

Thu, 09 Mar 2017 15:30:00 Z

As legislation currently stands, unless permitted development rights are removed by condition or an article 4 direction, or the property is an ACV as referred to further below, pubs can be demolished or changed to use as shops, restaurants or cafes or other temporary uses without the need for a planning application (although prior approval is needed for a demolition).

If a pub is listed as an Asset of Community Value (ACV), the above permitted development rights are removed, but (whilst a majority of existing ACVs have been placed on pubs) getting an asset listed can be a time consuming process and must be repeated every 5 years to benefit from continuing protection, so campaigners have been arguing for some time that more needs to be done.

Some local authorities have listened and have taken matters into their own hands. Both London Boroughs of Wandsworth and Southwark have recently issued 'article 4 directions' removing permitted development rights from a number of pubs in their areas. Those directions will prevent changes of use, demolition and certain alterations to the relevant pubs without an express planning permission. Not only does this give the community a right to have their say on any development proposals, it also means that the local authority can consider the plans against their development plan policies and balance what is right for the area.

In the meantime, the Neighbourhood Planning Bill is due to have its third reading in the House of Lords next week. If the current drafting makes it to the final cut, this legislation would have the effect of removing pubs from use class A4 and making them sui generis, effectively meaning that any change of use to or from a 'drinking establishment' would require specific planning consent. The Bill further proposes that permitted development rights to demolish pubs would be removed. This then would put the work done by the likes of Wandsworth and Southwark onto a national footing.

Debate about the above Bill in the House of Lords to date has referred to pubs being the heart of the community and a much-loved part of British life. Of course, even with the best intentions the above proposed changes do not mean that a pub is bound to thrive. They cannot make people use a pub and they cannot stop developers approaching owners with residential development proposals (for which they would have needed planning permission in any case) and promises of big money. If a business has become unviable or a decision has been made to close a pub down for some other reason, there is nothing the planning system can do to force it to stay open. What it can do, however, is protect pubs against being an easy target for retail development and perhaps even increase the take up of community projects to save them.

Finally, a victory in the on-going battle against business rates

Fri, 03 Mar 2017 16:30:00 Z

Property developers across the UK are breathing a sigh of relief after the Supreme Court this week overturned a ruling which had stipulated that business rates should be charged as if a property undergoing refurbishment was fully useable.

The case of Newbigin (Valuation Officer) v S J & J Monk https://www.supremecourt.uk/cases/docs/uksc-2015-0069-judgment.pdf concerned a building owned by S J & J Monk (SJJM) which had been occupied by a single tenant as office space. SJJM opted to redevelop the property for use as either a single office or as 3 separate offices.

On 6 January 2012, the property was vacant and had been stripped back to a shell. This date (6 January 2012) was key because it was the date for determining the rateable value on an application to alter the rating list.

The rateable value for the property had been £102,000 but SJJM proposed a nominal value of £1 on the basis that the property description should be a "building undergoing reconstruction", which could not be occupied.

The case turned on whether the property should be rated based on its actual physical condition (i.e. shell) or whether legislation should be applied to assume that the property was in reasonable repair (the "repairing assumption").

After consideration in the Valuation Tribunal, Upper Tribunal and Court of Appeal, the Supreme Court finally held that rating law was underpinned by the reality principle – that a property should be valued as it was on the material date. The repairing assumption referred to above did not override the reality principle. In addition the Supreme Court noted that the repairing assumption did not address the question of whether the property is capable of beneficial occupation.

What the Supreme Court has done is provide that the first question to be asked on a rating assessment is whether a property is capable of beneficial occupation – if the answer is no, then the property cannot be assumed to be in a state of repair and the rating value should reflect that.

This decision offers not only clarity to developers but a welcome relief from business rates liability whilst buildings are being re-developed.

Clearly this is an important decision for the whole of the UK property market, particularly in London and the south east where values are at their highest, but developers should be mindful of the comments made in the Supreme Court judgment which suggest that, if at any time during the development part of the property becomes capable of beneficial occupation, then that part could be separately valued for the purposes of applying business rates.

So, a welcome victory in this particular set of circumstances, but with the government pressing ahead with its revaluation of business rates and resisting widespread calls to overhaul what is largely regarded as an outdated and unfair system, it is clear that business rates will continue to be a burden for most UK property stakeholders.

The new statutory obligation to report on payment practices

Tue, 28 Feb 2017 12:49:04 Z

The regulations (which are in draft form at present) are titled: "The Reporting Payment Practices and Performance Regulations 2017" and a copy can be found here.

The government has also published guidance for businesses likely to be caught by these regulations, a copy of the guidance can be found here.

The regulations and guidance are essential reading for those that are likely to be caught by the new regulations (which will include many in the construction industry) as it will be a criminal offence by the business, and every director of the company or designated member of an LLP, if the business fails to publish a report containing the necessary information.

Some key points (based upon the current draft regulations and guidance) are noted below:

The regulations will apply to a company which exceeds two of the three conditions on both of the last two balance sheet dates set out at section 465 of the Companies Act 2006. Currently those are:
- turnover of £36million
- balance sheet total of £18million
- 250 employees
For group business it is notable that the requirement to report applies to each business entity in its own right so each entity will need to report individually.
Businesses incorporated overseas do not have to report but any UK subsidiaries (to whom the reporting requirements apply) will have to.
Reports have to be published on a web based service provided by the government which is still being developed and will be available from April 2017 (some businesses will need to start submitting information from October 2017).
Businesses will have to report information on their payment terms including narratives on standard payment terms, any changes to these over the last reporting period and maximum payment periods.
Statistics will also need to be provided in the report including the average time taken to pay invoices, what percentage of invoices are paid in less than 30 days, between 31 and 60 days, and over 60 days and what percentage of payments are not paid within agreed terms. Statements will also be required regarding the measures (such as e-invoicing) the business has.

Please get in touch if you would like further guidance on how to start preparing for the implementation of the regulations.

CIL review: A note of caution to charities

Mon, 20 Feb 2017 10:30:00 Z

It is no exaggeration to say that I have yet to come across anyone who is a fan of CIL, except perhaps those who enjoy the challenge of trying to make the Regulations work in a practical scenario. Many times, a conversation with a colleague has ended with someone exclaiming "but that can't be what it means". It comes as no surprise, therefore, that the recently published CIL Review Team's report quickly dismisses the idea of keeping the system as it is, noting that "The only question is how far such reform should go".

One of the biggest complaints about the existing system is the fiendish calculation formula and regime for offsets and exemptions. It is certainly far from the clear and transparent system that it was intended to be. That said, if the right forms are filled in at the right time, it does offer charities a very welcome blanket exemption from the tax where they are developing their own land for charitable purposes (and in some areas a discretionary exemption for their investment activities too).

The review team propose replacing CIL with LIT – a Local Infrastructure Tariff - with larger schemes also being subject to s106 obligations. The recommendation is that LIT would be a much-streamlined low level tariff which would require even the smallest development to contribute to an area's infrastructure needs. Where there are Combined Authorities, they would be entitled to charge SIT – a Strategic Infrastructure Tariff - akin to the current London Mayoral CIL.

The new tariffs would work as a local- set "per square metre" payment as with CIL, but with some significant changes to the calculation method.

One recommendation is that there will be very few or no exemptions from the requirement to pay. Whilst proposals suggest that rates will be lower than CIL tends to be, this could still impact on the viability of charitable development.

It is also recommended that the new tariff be mandatory across all local authority areas (unlike CIL, which authorities can currently choose whether to implement), and that changes of use are also caught, so the net would be wider than was ever the case with CIL.

That said, there is acceptance that further consideration is needed on how the tariffs could work for non-residential development, and that there may be scope for zero-rated uses. This could assist some charitable development.

Larger sites would have the benefit of being able to negotiate setting the tariff off against a s106 package but for some that may not be the answer, and it certainly leaves scope for confusion and a lack of clarity.

The government has promised a response to this report in the Autumn Statement, which leaves some time for stakeholders to make their views known. The door is certainly not shut to a charitable exemption or to zero-rating some types of development, but a strong case may need to be made. The review team hope that the new tariffs could replace CIL entirely by 2020, with a transitional period leading to that date.

The Housing White Paper: 5 ways to boost delivery

Wed, 15 Feb 2017 10:00:10 Z

Releasing public land - the Government has "an ambition to release surplus public land with capacity for 160,000 homes" during the remainder of this Parliament. The white paper also contains reference to enabling local authorities to dispose of land for less than best value and, interestingly, with the benefit of planning permission which they have granted to themselves (currently restrained by legislation which prevents third parties being able to rely on such consent). It is not immediately clear what benefit this will bring as a developer will almost certainly want to get its own consent or seek to vary what has already been secured.
Increasing densities – accepting that there is not one size that fits all, there is a suggestion that better use of land is made, particularly in urban areas which are well-served by public transport. It is accepted that flexibility needs to be introduced so that sites are not constrained by inappropriate space standards or open space requirements. There is a clear nod to taller buildings and compact living models. Rights to light will need to be borne in mind.
Thinking pink - whilst encouraging a minimum level of smaller sites, the government recognises the benefits of garden villages and other new settlements over piecemeal expansions to existing settlements, particularly as the former can be supported by necessary infrastructure. More may be to come on the topic of new settlements as 'pink zones', as recommended in the Centre for Policy Studies' recent report. Such an initiative could allow for new settlements to be developed by a special purpose vehicle under a much-simplified consents system, drawing on NSIP and New Towns legislation.
Information, information, information – the white paper recognises the importance of good design in achieving a community's support for new development and there is talk of supporting 3D models for helping to better engage with local communities. There are also proposals to require applicants to provide information about their proposed timing and pace of delivery in order to better analyse housing needs, and to require authorities to consider the chances of a site being built out, based on any previous history of unimplemented consents, when determining planning applications.
Resourcing – it will be music to the ears of many that this theme crops up more than once. Whether it be to help secure better design, or more generally to ensure that departments can recruit and retain skilled professionals, it seems to be recognised that more funding is needed to get things moving. Come July 2017, authorities will be able to increase planning fees by 20% and there are proposals to allow a further 20% increase in due course and in certain circumstances. More directly, the government is to make £25m of new funding available for "ambitious authorities in areas of high housing need".

Consultation is now open on many of the issues raised by this white paper. You have until 2 May to have your say here.

Green belt development - don't forget the law!

Mon, 13 Feb 2017 15:00:00 Z

It is trite law that planning applications must be determined in accordance with development plans unless material considerations indicate otherwise. Most development plans will state that no development can take place in the green belt unless very special circumstances exist, and that principle is backed up by the National Planning Policy Framework ("NPPF") - a material consideration in the determination of planning applications.

Whilst the White Paper does not seem to make development within the green belt any more likely, it does suggest that there may be opportunities to review the boundaries of such designations. It suggests that the NPPF will be amended to allow "development on brownfield land in the Green Belt, but only where it contributes to the delivery of starter homes and there is no substantial harm to the openness of the Green Belt". Further, "when carrying out a Green Belt review, local planning authorities should look first at using any Green Belt land which has been previously developed and/or which surrounds transport hubs".

With such a dire need for new housing, we cannot close our minds entirely to the idea that some land currently designated as green belt may be suitable for development. It is worth remembering that green belt land is not necessarily publically available leisure land: it is certainly not all 'green' and even some of that which is offers little by way of environmental value.

A speaker at the NLA's recent debate on the new London Plan (I believe it was Chris Choa, vice president of AECOM) pointed out that 2.5m homes could be accommodated within a mile of an existing train station in the green belt. Green belt reviews which look at land surrounding transport hubs might therefore be very powerful.

However, aside from the above (not insignificant) policy considerations, we should not forget that there is a second hurdle to potential green belt development on some land in Greater London, Buckinghamshire, Hertfordshire, Surrey, Essex, Kent and Berkshire.

The Green Belt (London and Home Counties) Act 1938 is an awkward piece of legislation which is still very relevant today (a fact perhaps not recognised by the government which states in its White Paper that the green belt dates from the 1950s). The idea of this legislation was to empower local authorities to acquire land to keep open as green belt. It also provides for an owner to declare that his land shall be deemed to be part of the green belt. Green belt land acquired under this Act by a local authority cannot be sold off without the consent of the Secretary of State. Similarly, Secretary of State consent is needed before building takes place on green belt land covered by the Act. If you are looking at land that falls within the area covered by this Act, it is worth checking whether it is caught by these provisions at an early stage.

Electronic Signatures – the future of executing documents?

Fri, 03 Feb 2017 02:30:00 Z

The Guidance Note identifies four different types of electronic signatures:

A signature in usual ink and paper format, which is then scanned or photocopied;
Using a finger or stylus to write on a touchscreen;
Using an e-signature platform and clicking to have your name automatically inserted (including clicking an "I accept" button); or
Typing a name into a contract.

Simple contracts

English law is fairly relaxed on what can constitute a contract. As such, the Law Society confirms that a simple contract can be concluded using an electronic signature.

Documents subject to a statutory requirement to be "in writing"

Numerous statutes require specific formalities for execution, including a common requirement that a document be executed "in writing". The Guidance Note provides that a contract executed via an electronic signature (including those which solely exist in electronic form) satisfies the statutory requirement to be "in writing" and is valid.

Deeds

Of particular relevance to property lawyers, s.52 Law of Property Act 1925 specifies that the transfer of land or any interest in land must be made by deed, as must any lease for more than 3 years in length. The Guidance Note states that as above, an electronic signature does satisfy these requirements.

However, deeds signed by an individual also require the presence of a witness who attests to the signature, under .1(3) of the LP(MP)A 1989. The Guidance Note advises that best practice is to have the witness in the room with the individual and witness the signature onscreen.

The Guidance Note also clarifies there is no reason why a combination of execution methods (for example wet ink and paper and electronic signature) cannot be used by any of the parties in a transaction.

The Land Registry & Electronic Signatures

However, whilst electronic signatures may be acceptable under English law, the Land Registry is yet to adapt to these new technological advances, and current policy is only to accept documents provided as evidence which are signed manually, not by facsimile. As such, it would be best practice to ensure that any documents which are likely to be submitted to the Land Registry for registration are signed using the traditional wet ink method.

Brexit

Of course, with the UK's impending exit from the European Union, this regulation could soon no longer have any effect on English law. Whilst a move away from validating electronic signatures would be highly unlikely – the Electronic Communications Act 2000 and Guidance Note show a strong leaning in favour of electronic signatures – it remains to be seen whether any statute will be implemented conferring the valid status of electronic signatures into English law.

Garden Villages - are they necessary?

Mon, 09 Jan 2017 12:07:11 Z

The government released a statement on 2 January 2017 backing 14 new garden villages, and 3 new garden towns, which will have the "potential to deliver more than 48,000 homes". The statement confirms £6m funding towards the development of the garden villages, and £1.4m funding towards the garden towns, together with additional support which the government will be providing in respect of "expertise, brokerage and offer of new planning freedoms".

Those who have started the year with their optimistic hat on might think that this announcement would be well received, given the country's desperate need for more housing. Further, the new villages, which will provide between 1,500 and 10,000 dwellings each, should be standalone settlements with their own amenities and so this initiative represents an excellent opportunity for some real 'place-making'.

However, since this government announcement a few days ago, there has been plenty of lively discussion around the proposed garden villages, and a fair degree of cynicism. Some are debating whether the garden villages will actually get built, and are bemoaning the fact that a number of the proposed sites are already 'in the planning system' therefore do not truly represent additional numbers.

Kirstie Allsopp has been particularly controversial on Twitter, criticising the government's understanding of what the country's need for housing actually means (i.e. it doesn't always mean a "house"). She has suggested that building detached houses in rural locations isn't the best way forward, in particular for the ageing population, and that we should be utilising empty buildings in town centres, or developing up, rather than out. From an initial review of the responding comments, it seems that her ideas are both disputed and shared in equal measure, however this does raise the valid question as to what is being done to revive and rejuvenate empty buildings throughout the country.

We believe that there is a huge benefit in developing new garden villages and towns, but this should not detract from the fact that other empty buildings could also be redeveloped for housing as well. These ideas need not be mutually exclusive.

We are not alone in that thinking, as on 3 January the government announced the first wave of 30 local authority partnerships to build new starter homes on brownfield land "including some town centre sites", backed by the £1.2bn Starter Homes Land Fund.

It is fascinating to read the media coverage and social engagement on these issues, which can only help to promote ideas on how to satisfy housing needs in the future. There is always more that can be done, but we're keeping our optimistic hats on for a while yet and looking forward to seeing the first of the garden villages progressing and being built out.

The ins and outs of tall buildings

Fri, 18 Nov 2016 09:54:47 Z

London has for many years lagged behind other world cities such as Shanghai and Tokyo which were quick to embrace the dramatic skylines created by tall buildings but many Londoners have fallen in love with these frequently iconic structures which are now spreading throughout the square mile; no longer confined to the Isle of Dogs.

Are tall buildings the way forward or will we live to regret allowing these modern monoliths to sit alongside London's most ancient monuments?

Tall buildings are clearly necessary in cities where land values are so high the onus is on developers to make the most out of the footprint available by building upwards. This is even more acute when unusual designs limit the useable space on each floor compared with a regular box-shape. Quirky designs give a city character and designers should be encouraged to think outside of the box when it comes to the shape of buildings but there is a lot more to successful design than just outline. After all, the tallest of these buildings may prove to be almost impossible to demolish and therefore they need to be able to withstand the test of time.

Tenants expect new buildings to offer the very latest in technology and it is surprising that things such as wireless technology and mobile phone reception could have been overlooked in the design of such spaces and yet there are examples around London where this is the case. At least now designers are taking seriously the issue of downdrafts created by tall buildings but what more needs to be done?

Some have continued to focus on exterior design. In 2015, an architectural practice announced it had designed a "no shadow" skyscraper which solved the problem of skyscrapers permanently blotting out sunlight for neighbouring buildings. The design focused on curved glass panels reflecting light onto the street below (presumably learning from the problems that ensued from the curved glass of the Walkie Talkie).

Others have focused on interior design and the needs of their occupants. Tower 42 was one of the first skyscrapers in London to offer full 4G mobile network coverage to its occupants in February 2016. It is a feat that nearby modern rivals have failed to achieve, and its value to potential occupiers should not be underestimated â€“ the announcement caused speculation that rivals such as the Shard and could fall in rankings for the most desired office space.

Developers are also considering whether glass and steel skyscrapers really are the future of construction. Glass buildings are notorious for suffering heat loss in the winter and heat gain in the summer, hence the costs of both heating and air conditioning are considerable. With this in mind, developers and architects are now assessing the best locations for windows, and designing building shapes specifically with the purpose of keeping them naturally cool.

Whilst the onslaught of new skyscrapers in London shows no signs of slowing down, perhaps we will see developers and architects put more thought into the needs of their occupiers and surrounding landowners, and less of a focus on headline-grabbing exterior designs.

Building on Brexit

Thu, 10 Nov 2016 16:09:57 Z

It was reported on 27 October 2016 that UK GDP grew by 0.5% in Q3 – that’s 0.2% stronger than official forecasts made before the referendum decision in June. The stronger than expected growth was driven by a 0.87% expansion in the services sector and analysts have suggested that the result shows there is little evidence of a pronounced effect in the immediate aftermath of the vote. However, all other sectors contracted in Q3 including construction which fell by 1.4%, the biggest fall since 2012.

On 11 October 2016, the House of Commons issued a Briefing Paper on the implications of Brexit on the housing market and construction industry. It has reported that immediately after the referendum decision, confidence in the economic outlook of the construction industry plummeted below the 50.0 no-change level to the lowest since early 2008.^[1] August and September 2016 showed modest improvements (driven primarily by a recovery in residential building and a renewed rise in civil engineering activity), yet commercial construction declined for the fourth month running, the longest period of sustained decline since early 2013.

The housing market has a significant impact on the demand for house building and, in turn, the construction industry. Despite speculation that Brexit might lead to significant falls in house prices, there has been little indication following the vote that this has been the case. Indeed, the Halifax House Price Index for September 2016 showed a slight rise in prices of 0.1% and Nationwide reported a rise of 0.3%. An upturn in housing demand contributed to a rise in new work in September for the first time since April.

However, other aspects of the industry appear to be feeling the impact of the vote.

Labour

The UK construction industry is heavily reliant on migrant workers from Europe due to insufficient numbers of new and existing skilled workers entering the construction sector from the domestic UK market. As of June 2016, 12% of British construction workers were of non-UK origin and with UK unemployment at a low of about 4.9%^[2], the labour and skills shortage in the construction industry cannot be resolved domestically. The federation of Master Builders has said that "It is now the Government's responsibility to ensure that the free-flowing tap of migrant workers from Europe is not turned off…"^[3] However, immigration was one of the main arguments put forward for leaving the EU. It is therefore unclear how this tension will be resolved.

Imports and Exports

The UK is partially reliant on imports from the EU, particularly from Germany, Italy and Sweden. In 2014, 53% of goods and services were imported from the EU. Exports to the EU are also a key part of the UK economy with 45% of the UK's exports in 2014 being to the EU. Depending on the withdrawal agreement negotiated by the UK Government, export tariffs may apply to exports to the EU which is likely to reduce overseas demand for UK goods and services.

Exchange Rates

Currency fluctuations have a significant impact when there is reliance on the import and export of goods and services, particularly in an industry where margins are notoriously tight. The weakening of the pound has contributed to a sharp acceleration in cost inflation with suppliers acting quickly to pass on higher imported raw material costs. Whilst including exchange rate clauses in construction contracts is a possibility allowing for a renegotiation on price if an exchange rate fluctuates beyond a set number of percentage points, such clauses were certainly not common place before the Brexit vote.

Changes in Law

Typically contractors take the risk when there is a change of law, particularly in PFI and longer term contracts. However, there is a significant lack of clarity as to how the process of leaving the EU will work - not helped by last week's High Court ruling that the UK government must consult MPs before triggering Article 50.

Much of the law in the UK is European law and there is no clarity as to if and how various pieces or parts of legislation will be repealed and when. This uncertainty makes it difficult for contractors to take this risk, particularly given the margins they work on, and it will make change in law clauses more difficult to manage.

Social Housing Sector Intervention

The British Property Federation has called on the Government to consider a range of tax reliefs for Build-to-Rent development including Community Infrastructure Levy relief, relief for modular construction and stamp duty relief. The House of Commons Briefing Paper reports that the social housing sector has grasped the opportunity and offered to step in to build 300,000 more homes over the period of the next parliament both for ownership and rent.^[4]

This would necessitate a policy shift away from the government's aim of increasing home ownership. However, there have been indications that Theresa May is willing to consider this in order to boost overall supply. The think tank, Capital Economics, has forecast savings of between £102 billion and £319 billion from reductions in Housing Benefit that would derive from the development of 100,000 new social rented homes a year as fewer claimants would be living in the more expensive private rented sector.

The sector is hopeful that the Autumn Statement due on 23 November 2016 will deliver on some of the funding flexibilities requested. We will provide an update shortly after the Autumn Statement.

[1] Markit/CPIS, UK Construction Purchasing Managers' Index, 4 October 2016

[2] Office of National Statistics

[3] Federation of Master Builders, Brexit could worsen construction skills crisis, 24 June 2016

[4] NHF, The vote to leave the EU – considerations

Refusing to pay up? You'll need a good case

Fri, 16 Sep 2016 16:55:06 +0100

Adjudication is a popular form of dispute resolution in the construction industry and is usually a quick and cost effective process. Nevertheless, an unsuccessful party at adjudication may challenge the decision in subsequent enforcement proceedings if it can be determined that the adjudicator has acted in breach of their jurisdiction or the rules of natural justice. The recent TCC case of Ground Developments Ltd v FCC Construccion SA and others [2016] EWHC 1946 considered the parameters of when such defences could be used and highlights the futility of "simply scrabbling around to find some argument, however tenuous, to resist payment".

An adjudicator was asked to decide on an outstanding payment that Ground Developments Ltd (the "sub-contractor") sought from FCC Construccion SA and others ("the JV") arising out of a disputed contract for ground engineering works. Prior to the sub-contractor commencing work in August 2015, discussions had already taken place surrounding the terms and conditions of the NEC3 sub-contract, yet no formal contract had been entered into and signed by the parties. The sub-contractor sought to confirm the terms by which it would carry out the works in a letter sent in early September 2015, which received no response from the JV. The adjudicator decided that the terms and conditions in the sub-contractor's letter formed the basis of the parties' contract and awarded payments to the sub-contractor in accordance with those terms.

At subsequent enforcement proceedings the JV put forward seven separate grounds by which it argued that the adjudicator had breached the rules of natural justice and exceeded his jurisdiction. The court rejected all of these and the adjudicator's decision was enforced. In consideration of whether the adjudicator had breached natural justice Fraser J adopted the approach used by Chadwick LJ inCarillion Construction Ltd v Devonport Royal Dockyard Ltd [2005] EWCA Civ 1358 and reiterated that the courts would only uphold this defence in the "plainest case". To seek to run such a defence in cases otherwise would "likely to lead to a substantial waste of time and expense". Moreover, in dealing with the argument that the adjudicator had decided on more than one dispute at the same time Fraser J held that the position adopted by the JV's counsel was "verging upon, if not completely unarguable".

This is a positive decision in support of the adjudication process and is likely to be of interest to any party considering enforcement proceedings or, indeed, any party seeking to resist enforcement who may be prompted to reflect upon whether the credibility of their position really does justify throwing further money away on lawyers and court fees.

To see the full judgment of this case, please click here.

Office to Residential Permitted Development Rights – an update

Mon, 08 Aug 2016 11:24:42 +0100

By way of recap, the permitted development rights – found in Class O, Sch 2, Part 3 of the Town and Country Planning (General Permitted Development) Order 2015 - allow such a conversion where the building was in office use on 29th May 2013, or in the case of a building which was in use before that date but was not in use on that date, when it was last in use. The rights do not apply to listed buildings or in certain other limited cases.

This development is only permitted subject to the condition that before beginning the development, the developer must apply to the local planning authority for a determination as to whether the prior approval of the authority will be required as to a limited number of issues, namely transport and highways impacts of the development, contamination risks on the site, flooding risks on the site, and impacts of noise from commercial premises on the intended occupiers of the development. The authority is entitled to impose conditions on any prior approval consent granted. The development must then be completed within a period of 3 years starting with the prior approval date, although it is still somewhat unclear about what 'completed' means in this context.

The Planning Court has held in Justin Edward Pressland v The Council of the London Borough of Hammersmith and Fulham [2016] EWHC 1763 (Admin) that the s73 procedure for varying or discharging planning conditions can be used to vary or discharge a condition imposed on a prior approval notice. In this case, prior approval had been granted for the conversion of part of a building into three residential flats, subject to fourteen conditions, many of which required the submission and approval of further details and schemes. The Claimant sought to remove eight of those conditions. The Court found that "any conditions subject to which prior approval is granted by virtue of paragraph W(13) are conditions subject to which the relevant Class O planning permission is granted".

Whilst the planning permission was granted by the development order rather than the prior approval process, a s73 application could still be made. Whilst local planning authorities are still able to remove these permitted development rights by way of condition or article 4 direction, the above decision seems to add some flexibility into the system, which could be welcomed by those seeking to promote residential development.

We are awaiting further legislation to bring forward anticipated new permitted development rights to permit the demolition of office buildings and construction of residential units. Little is currently known about the detail likely to apply to these rights (including when they will come forward), and how issues such as affordable housing will be dealt with, but we will be keeping our eyes out for them.

5 Partners = 1 Invalid Break Notice

Fri, 05 Aug 2016 12:00:14 +0100

Facts

In this case the High Court had to consider an application from the landlord seeking a declaration that a break notice served on their tenant was valid. The Claimant landlord was a limited partnership created in April 2011 which originally consisted of two partners, but with three additional partners joining shortly thereafter in June 2011.

In October 2011 the City of London Corp granted a 10 year lease to the Defendant tenant of premises in Fenchurch Street, London. The lease contained a break clause which allowed the landlord a right to terminate the lease on 27th September 2016 on giving at least 6 months' notice.

On 22nd March 2016 the Claimant landlord (comprising the five partners) took an overriding lease of premises from the City of London Corp. On the same day, the solicitors for the Claimant landlord wrote to the tenant informing them that the Claimant (defined in the letter as "the Partnership") had become their landlord and promptly served a break notice (together with a s.25 notice pursuant to LTA 1954) on the tenant. The tenant argued that the notices were invalid as the party giving the notice was not the landlord under the lease as the legal estate in land could not be vested in the name of a partnership as a legal estate could only be held by a legal person or persons, and a limited partnership had no legal personality.

The Claimant landlord's claim was dismissed and it was held that the notice was invalid as the legal estate in land could not be vested in the name of a partnership.

Limited Partnerships Act 1907

Statute provides that land held by a partnership could be vested in no more than four partners, and that where more than four persons were named as trustees or grantees, "the first four named" should hold the estate as joint tenants in trust. In this case, the "first four named" persons could not be established by reference to documents such as those filed in accordance with the provisions of the Limited Partnerships Act 1907. The overriding lease could not have been granted to the Claimant landlord, as that was not possible in law, and it was not granted to four of the partners individually. The break notice referred to the Claimant partnership being the landlord under the lease which was not correct and the Claimant partnership was not, therefore, in a position serve the break notice on the tenant.

Future

Landlords should be aware that if they are taking a lease of premises in the name of a partnership, issues will arise if the partnership comprises more than four partners. Tenants should also be aware of this fact and should keep this in mind if they receive a break notice from their landlord in the name of a partnership. It is always worth checking the number of members comprising the partnership, particularly if you are a landlord wanting to serve a valid break notice, or a tenant who wants to challenge the validity of a break notice.

Brexit and the housing crisis – where are we now?

Mon, 01 Aug 2016 15:02:58 +0100

Brexit is one more spanner in the works. So where are we now?

The results of the vote immediately sent shockwaves around the world, resulting in housebuilder share prices plummeting overnight (although now rising again) and talk of economic uncertainty monopolising headlines.

A fall in house prices is of course a good thing for many, although if people are not moving up the ladder then for those trying to reach the first rung the desire of banks to lend and builders to build is ever more critical.

What does this mean for the planning system? Gavin Barwell has now been appointed as Housing and Planning Minister (and Minister for London, in case he is not already busy enough) and Sajid Javid as Communities Secretary. They will have to hit the ground running, which much still left to do to bring the recently enacted Housing and Planning Act to full effect. The industry is still unclear on precisely what Starter Homes requirements will look like and whether Permissions in Principle are likely to even out the playing field and encourage development on brownfield land.

Will an eventual Brexit result in a lessening of environment protection requirements and speed up the planning process? Possibly, although it seems unlikely that anything significant will happen on that front any time soon. Will we see developers pushing for a renegotiation of affordable housing (and other s106) requirements? Almost certainly, although remember that the s106BA appeal mechanism for unviable schemes has recently been automatically repealed (and I hardly dare think about what could happen to CIL). Will the Government continue to push for home ownership rather than exploring rental options? Seeing as this appears to be such a fundamental point for the Conservatives, that would seem unlikely, but these are strange times and perhaps nothing should be ruled out.

Come what may, and as the UK's population is likely to continue to grow and grow, the desperate need for more housing, that people can afford to live in, is not going to go away. We await news on how the planning system will react – safe in the knowledge that if there is one thing we know the planning system can do, it is change.

Brexit and the housing crisis – where are we now?

Mon, 01 Aug 2016 11:26:05 +0100

Brexit is one more spanner in the works. So where are we now?

What does this mean for the planning system? Gavin Barwell has now been appointed as Housing and Planning Minister (and Minister for London, in case he is not already busy enough) and Sajid Javid as Communities Secretary. They will have to hit the ground running, with much still left to do to bring the recently enacted Housing and Planning Act to full effect. The industry is still unclear on precisely what Starter Homes requirements will look like, what is to be the right to buy, and whether Permissions in Principle are likely to even out the playing field and encourage development on brownfield land.

Come what may, and as the UK's population is likely to continue to grow and grow, the desperate need for more housing - that people can afford to live in - is not going to go away. We await news on how the planning system will react – safe in the knowledge that if there is one thing we know the planning system can do, it is change.

Planning: the sequential test

Tue, 26 Jul 2016 09:52:51 +0100

The case concerned an application for planning permission for a large foodstore on a business park, some 3 ½ miles outside Mansfield town centre. Whilst not named on the application, it was apparent that Aldi was the intended occupier. As it happened, Aldi already had an existing store nearby, and another which had been permitted. The claimant was a town centre developer who objected to the grant of consent. The grounds of challenge included an alleged misinterpretation of how the sequential test should be carried out. The Court agreed that there had been a misinterpretation of that test, and as such a failure to take into account a material consideration, so quashed the consent accordingly.

The sequential test, as many will know, obliges planning authorities to "require applications for main town centre uses to be located in Town Centres, then in edge of centre locations and only in suitable sites are not available should out of centre sites be considered"

In this case, the planning authority had (wrongly) accepted the exclusion of Mansfield town centre from the sequential test on the basis that it would not make commercial sense for Aldi to develop so close to its other stores. The Court held very clearly that the commercial attributes of a particular retailer should not dictate what was "suitable" and "available" in the context of the sequential test – the test was not one of an individual operator's preferences, or of which sites were available to that particular retailer. Rather, reference should be had to the broad type of development which is proposed by the application "by approximate size, type and range of goods" and to what sites are available for that type of retail use.

Whilst a personal condition had been imposed, this was held to have reinforced the error of approach rather than resolving it. Ouseley J also gave a detailed judgement on the other grounds of challenge, including the interpretation of development plan policies and more on the above personal condition.

Incidentally, having recently run some 'Introduction to Planning' training sessions, for which I spent far too long thinking of how to best explain the purpose of the planning system, I was pleased to read the following nugget in Ouseley J's judgment "It is the purpose of the planning system to control development, that is to permit, prevent, encourage, inhibit or limit and condition it, so that the individual private or commercial interest and the broader public interest meet in reconciliation however uneasily". I will leave you to decide whether you think that is what the system achieves.

Break Notice – All 4 one?

Fri, 27 May 2016 13:34:20 +0100

The tenant in this matter wished to terminate their lease of "Coniston House", in accordance with the break notice conditions contained in the lease. Four landlords were named in the lease and, pursuant to the lease definitions, the landlords were all of the same address in 2010 when the lease was granted, being "75 Tyburn Road". The tenant therefore drafted four separate break notices, one for each named landlord, with the notices all being served on the same address as set out in the lease seeking to terminate the lease on 10 July 2013, being the end of the third year of the term.

The Claimants issued proceedings challenging the validity of the break notice on the basis that the address on which the notice was served was not the "place of abode or business" for any of the Claimants at the time when the notice was served. 75 Tyburn Road was actually held by the Claimants as an investment asset and was leased to a separate business tenant. It was argued that the Defendant tenant has not exercised reasonable diligence in ascertaining whether the address for the landlords given in the lease remained the correct address. The Defendant sought to rely on s.23(2) LTA 1927 which deemed service on an original landlord's address as good service unless the tenant had been informed of a change.

The Claimants only comprised three out of the four original named landlords as the fourth had ceased to have an interest in the 75 Tyburn Road in 2011 ("former landlord 4""), although it was accepted that this fact had not been communicated to the tenant. Former landlord 4 had, however, taken a business lease of 75 Tyburn Road and was actually the only one of the four original landlords with a business connection to that property. Whilst it was queried whether the tenant could rely on service on landlord 4 on the basis that the tenant was unaware that landlord 4 no longer had an interest in 75 Tyburn Road, this argument was not pressed and it is likely that the tenant would not have been able to rely on service on landlord 4.

It was, however, held that the notices were valid as the original address for the landlords in the lease could be deemed their "abode or place of business" because the landlords had, on the true construction of the lease, nominated it as such. That address therefore remains in place "until the landlord nominates some other address or, perhaps, the tenant acquires actual knowledge that it cannot be an address at which the landlord can be reached" (HHJ David Cooke).

Points to note:

A party wishing to serve a notice at a particular address bears the burden of showing that the address fits the statutory or contractual criteria relied upon.
If intending to serve on the "last known" address the serving party should exercise reasonable diligence in establishing whether that is, in fact, the last known address.
If it is discovered that the receiving party is no longer at the original address, but no details can be found of a new address, service can still be made on the original address as that remains the "last known" address.

"Innovative and sustainable" – Rio Ferdinand launches new redevelopment and regeneration model

Wed, 23 Mar 2016 12:02:00 Z

The Foundation, set up with Colliers International and backed by Aviva Investors, aims to regenerate communities including a commitment to put sporting, leisure and educational facilities at the heart of affordable and private housing development. The development activity will be funded by long term private investment.

It already has a 1,000 unit scheme in the pipeline with Central Bedfordshire Council which aims to deliver 55 per cent build to rent housing for private tenants. The scheme will use a leaseback model whereby the local authority retains the freehold and grants a 45 year lease to investors. All of the rents will be paid directly to the local authority but the local authority will pay the investors a rent over the lifetime of the lease, providing a return on investment.

This is an innovative funding mechanism and, if successful, will unlock local authority land for development, provide the local authority with income - without having to take on construction risk. The local authority also gets to retain its asset over the long term.

The Department for Communities and Local Government is backing the model. Housing and Planning Minister Brandon Lewis said: "We are looking for innovative schemes. Legacy brings to the table something very different. At its core is that determination to deliver something that doesn't just deliver the housing, but delivers a really cohesive community, with real opportunity for people to have stronger life chances and a better environment in which to live".

Rio Ferdinand has launched the scheme alongside West Ham captain Mark Noble and former West Ham striker Bobby Zamora.

Global Real Estate Transactions to Hit $1tn by 2020

Mon, 21 Mar 2016 07:09:00 Z

It is suggested that, driven by the need to cater for the ageing global population’s investment requirements, institutions will increase their market share, which currently sits at 20%.

Property investment allocations have grown in recent years, with 2015 seeing a record £15bn in transactions in the UK alone (representing c.25% of all commercial real estate investment), up from less than 10% five years ago.

Real estate investment markets have also witnessed several new trends as the sector has become more global, helped by its stable income stream, the attraction of diversified portfolios, its apparent lower risk and its use as a hedge against inflation.

The definition of mainstream real estate investment has also widened and now includes healthcare, care homes, student housing, residential development, as well as public and private real estate debt.

Urban Land Institute publishes Second Edition of acclaimed Build to Rent Guide

Mon, 07 Mar 2016 07:19:00 Z

The First Edition was launched back in 2014 at a time when the market was sceptical about the long term prospects of the build to rent sector. For that reason it was as much about laying out the business case to would be investors as it was a guide for best practice.

Since then, the build to rent market has taken off and we have seen an explosion of investment - the start of 2016 alone has seen a number of significant schemes announced; L&G and PGGM's 3000 unit/£600M build to rent partnership as well as a £1bn fund confirmed by RBS. We have also seen published the BPF's Build to Rent Manifesto, acknowledging it as a new asset class, and the setting up of the government's PRS Taskforce – which has delivered various initiatives to support the sector, including the successful Build to Rent Fund (offering £1bn to help support the delivery of 10,000 new homes designed specifically for rent).

Alex Notay, ULI UK Policy Director and Editor of the Build to Rent Guide said of its launch, "We had always hoped that a second Guide might be feasible, when we could move from proving that the Build to Rent concept could work in the UK, to demonstrating true best practice in a UK context. We were all conscious that we had depended on US examples in the first edition, because there simply weren't any live case studies here. We are delighted that this new edition features, not only three brand new chapters and five fully revised chapters but also numerous home-grown case studies of real schemes, both purpose-built and retrofitting of existing buildings".

The year has got off to a promising start for the built to rent sector and demand for high quality rented housing is undoubtedly here to stay – PWC recently revised its previous predictions upward so that by 2020, it estimates that 60% of Londoners will be renters. With the demand for this emerging asset class well established and with institutional investment pouring in, we look forward with interest – could this be PRS' year?

You can find out more information on ULI UK's Build to Rent Guide here: http://uk.uli.org/

NEC must extend culture and spirit to lawyers to end curse of the Z Clause

Thu, 11 Feb 2016 07:25:00 Z

He also states:

"The Z clause option in NEC contracts was never intended to provide a carte blanche invitation to amend NEC contracts at will. On the contrary, its aim was to include additional contract conditions to suit the unique nature of the work involved"

"However, lawyers and quantity surveyors brought up on the concepts of 'provisional sums' and grants of 'extensions of time' continue to amend NEC contracts − through incorrect usage of Z clauses − to make them resemble the traditional contracts they are used to"

He concludes the article by saying, "Other than wringing our hands in frustration, what can actually be done?"

If Z clauses are to be reduced, and only used as intended, the NEC must reach out to and wrap its culture and philosophy around construction and projects lawyers.

This article explores some of the possible reasons for the prevalence of Z clauses, and concludes by offering possible solutions to reduce them.

Construction lawyers are not part of the professional team

The NEC promotes collaboration, partnering, open and upfront communication, proactivity, and, of course, a spirit of mutual trust and co-operation. These are all worthy aims, but they are directed towards the relationships amongst the client, the professional team and the contractor. This culture does not extend to construction lawyers, who are typically on the periphery of, and not embedded within, the professional team. The effect is that construction lawyers:

are often involved later rather than sooner on a project;

lack the accumulated background knowledge that comes from attending key meetings and being involved in the project from the outset;

do not experience the same level of information flow and open dialogue;

are often treated with an air of caution by the professional team and contractor; and

when eventually appointed, are not embedded to the same extent as the other key advisors (for example, lawyers are not involved at regular project meetings as a matter of course).

Against this backdrop, there is greater potential for construction lawyers to not fully understand the deal (including the risk allocation) and/or to have insufficient time to design and make a draft contract that reflects the parties' requirements.

The result is that a cautionary, protectionist and traditional approach is often taken, which leads to more Z clauses: "If I go with a cautionary and protectionist approach for the early drafts of the contract to protect my client, I can't be wrong, and the true risk allocation and deal will be flushed-out during the negotiation".

This approach could have a tangible, adverse time and cost impact. For example, it protracts the negotiation, increases costs (e.g. legal fees; unnecessary letters of intent; contractor risk contingencies), and often leaves feelings running high.

The engagement letter undermines the NEC philosophy

The engagement letter is the contract between the client and the construction lawyer's law firm. It is typically on the standard terms of the law firm (sometimes with agreed amendments).

These contracts rarely (if ever) spell out in enough detail or, indeed, at all that the client instructs their lawyer to design and make a contract that recognises a fair risk-share, respects NEC contracting philosophy, and that should only contain Z clauses "to suit the unique nature of the work involved" (see Rudi Klein's quote above). Nor do engagement letters ever state unambiguously that the client whole-heartedly buys into the NEC approach and, accordingly, willingly accepts a greater level of risk in the contract than in traditional forms of construction contracts.

The NEC suite of contracts requires that the client and the professional team / contractor spend time upfront – prior to entering into the contract – dealing with the detail and scope of the contractual relationship. For example, the NEC Professional Services Contract (PSC) – which on NEC projects would be used to appoint consultants (such as architects, engineers, and other designers) – includes provisions on early warnings, programmes, risk registers, communications, compensation events, and a spirit of mutual trust and co-operation. The upshot is that the client and consultant have a clear contractual understanding from the outset that is underpinned with NEC principles, and, accordingly, the consultant has a sure and confident legal footing of what it should and not be designing and making.

Unless there is contractual sure-footedness in the engagement letter that clearly recognises the departure from cautionary and protectionist traditional contracting, construction lawyers will always carry uncertainty in their thinking and behaviour that if they do not cover all of the issues in a traditional way they will face a negligence claim.

Naturally, against an uncertain contractual backdrop, rather than designing and making a project contract that reflects the NEC philosophy and risk-sharing, construction lawyers are much more likely to adopt a cautionary and protectionist position, which, in-turn, is likely to lead to more Z clauses.

Client behaviour still too often promotes little risk and a contract that "covers" them

Clients often state that the NEC culture reflects their organisational values, yet they are regularly unwilling (or do not have the time and resource) to effectively engage and co-operate with their construction lawyers in the process of designing and making the contract so that it reflects the NEC approach.

In traditional contracting, a lack of client engagement is generally not an issue because, typically, most (if not all) risk is allocated to the contractor / consultant. However, in the more nuanced NEC world, designing and creating the contract needs a hands-on, bespoke approach and certainly needs much more and clearer collaboration, dialogue and instructions between client and their construction lawyer.

If construction lawyers are unable to fully understand the exact nature of the deal and its risk allocation because of a lack of client engagement or because – when push comes to shove – the client simply tells the lawyer that it wants a contract that "covers them" (as often happens), it is not surprising that construction lawyers will, indeed, design and make an NEC contract that is overly protectionist, cautionary, and traditional.

Law firms are expected to price an NEC project as if it were one of Rudi Klein's "traditional contracts"

There is a perception that NEC projects equate to greater upfront cost, but the trade-off is that, in the long run, an overall "healthier" project is achieved in terms of time, cost and quality. This seems logical given that the NEC approach requires the parties to really get to grips with the issues upfront, and not brush them under the carpet and store the problems for later.

This acceptance on cost, however, does not extend to the appointment of construction lawyers where the market position for pricing an NEC project is still benchmarked against what a construction lawyer would charge for an equivalent project that uses a "traditional contract".

This is unsatisfactory given that to design and make an NEC contract – with a subtler and more bespoke risk allocation – requires more time and involvement than a contract that simply allocates all of the risk in a traditional way to the contractor / consultants.

By pricing to meet market expectations, it is unlikely that legal fees will carry sufficient headroom to proactively attend meetings, drill into the detail of the project and risk, and enter into frequent and two-way communication that is required by the NEC contracting philosophy.

If the project budget does not recognise that legal fees will be higher than for a "traditional contract", it is likely that the cheaper and quicker default option of a "traditional contract" filled with Z clauses will be produced.

The "NEC world" should extend to construction lawyers

The NEC has developed an entire world to support its contracts, such as accreditations (e.g. the accreditation for ECC Project Managers), regular learning webinars, a plethora of training courses, a range of manuals and books, users' groups, a newsletter, and even has annual awards.

This support and learning is to be encouraged. However, it does not focus specifically on the role of the lawyer on an NEC project, even though, clearly, they are key advisors, and have a significant role in designing and making an NEC contract that suits the project. In this respect, they are not dissimilar to NEC's project manager and supervisor (albeit pre- rather than post-contract).

Rudi Klein notes that there is continued "incorrect usage of Z clauses" by lawyers, and that they make NEC contracts "resemble the traditional contracts they are used to" (see his quote above). If there is a perception that lawyers are familiar with "traditional contracts" and incorrectly use Z clauses this implies a disconnect between (i) lawyers and the NEC contracting approach and (ii) lawyers and the rest of the NEC project family (e.g. the client, project manager, and other key advisors).

Accordingly, a training and learning programme from the NEC (possibly run in conjunction with lawyers) that focuses on the role of and use of lawyers on NEC projects (targeted at both lawyers and the rest of the NEC project family) would be an opportunity to help break down barriers and get a greater number of lawyers familiar with and used to using NEC contracts. This, in-turn, should help to promote the correct use of Z clauses.

Potential solutions to the curse of the Z clause

Use the NEC PSC to appoint construction lawyers or have an NEC rider that can be bolted-on to engagement letters to establish the NEC culture within the lawyer's appointment.

A detailed template scope of service (either within the PSC or the protocol rider). This could be used for the purposes of pricing, but also creates contractual sure-footedness.

A contractual statement from the client of their acceptance of an NEC contracting philosophy (including risk sharing) and desire to collaborate and co-operate with their lawyer to achieve the NEC philosophy they require.

A checklist or menu of typical risk areas (e.g. site conditions and caps on liability) to marshal and promote dialogue between a client/project manager and their lawyer, so that there is clarity on the risk allocation.

A training and education programme developed in collaboration between the NEC and lawyers that is specifically tailored for lawyers using the NEC.

Extending the NEC's training and education programme so that all other stakeholders (including the client and other key advisors) know when to appoint the lawyers, what to expect of them, and how to get the best from them.

The promotion and recognition by the NEC that lawyers are an integral member of the project team (like architects, engineers, and project managers), whose early involvement would add value.

An accreditation programme to create a list of accredited NEC ECC lawyers.

Extending the NEC's awards categories to include a lawyer specific award for best use of Z clauses.

Housing shortage is a construction industry skills crisis

Mon, 18 Jan 2016 07:37:00 Z

However, the Government’s massive pipeline of major construction projects (like Crossrail), its recent announcements to get directly involved in house building, and a collaborative risk-sharing contracting philosophy (NEC contracting), all point towards a housing shortage that is unlikely to abate without major investment by the Government in skills-development across the construction industry.

Government set to become land-owning residential developer

On the 4 January 2016, the Government announced that it is to directly commission thousands of new affordable homes, with Prime Minister David Cameron noting that the Government is “rolling its sleeves up and directly getting homes built”. The Government is, in effect, taking on the challenge of being a residential developer, which is no easy feat, and which requires a skilled and well-resourced client-side workforce.

The Government notes that “currently the top 8 house builders provide 50 per cent of new homes” and, accordingly, “the direct commissioning approach will support smaller builders and new entrants who are ready to build but lack the resources and access to land”. However, Brian Berry, Chief Executive of the Federation of Master Builders, commenting on the announcement, said: “As positive as this development is however, it remains only one piece of the jigsaw. The on-going skills shortage is as pertinent for local firms as it is for larger contractors.”

Government commits even more resource to house building

On the 10 January 2016, Prime Minister David Cameron announced a Government commitment of regenerating the most run-down housing estates with the aim of transforming them with attractive and safe homes. However, a Savills report, which was commissioned by the Cabinet Office, makes the following observations about this announcement: “Given the leadership capacity and technical skills available to most Local Authority housing and planning departments, the management of more than one or two sites at a time would be difficult. This makes a case for providing additional capacity and resources…”.

Is Government resource already overstretched?

The Government currently has some massive infrastructure projects, such as High Speed 2, Crossrail, Thames Tideway Tunnel, Hinkley Point C and Highways England projects. There have been attempts to address the predicted skills shortfall through training initiatives like the Roads Academy initiative, National College for High Speed Rail, and the Tunnelling and Underground Construction Academy.

However, the National Audit Office (NAO) has just issued their latest report on the Government Major Projects Portfolio, which includes major service reforms, ICT projects, and infrastructure and construction projects (such as Crossrail). “There are 149 projects in the Government Major Project Portfolio (the Portfolio), with a combined whole-life cost of £511 billion and an expected spend of £25 billion in 2015-16” (NAO).

The NAO noted: “Key recurring issues included an absence of portfolio management at both departmental and government level; poor early planning; lack of capacity and capability to undertake a growing number of projects; and a lack of clear accountability for leadership of a project”.

The Government’s contracting philosophy for construction and infrastructure projects

The Government typically contracts on such projects using the NEC suite of construction contracts, which has the aim of promoting collaboration, a spirit of mutual trust, appropriate risk allocation, and better project management. These are worthy aims, but realising them requires that NEC contracts are given careful and considered thought pre-contract, and are actively managed and operated during the lifetime of the contract. Steve Rowsell, NEC Users’ Group Chairman (writing in NEC Users’ Group Newsletter; January 2016; Issue 76) says: “NEC contracts are most successful when administered effectively and efficiently by skilled practitioners”.

The headlines need to change

No doubt we’re going to continue reading headlines of a Government determined to give people a helping hand onto the property ladder, but if the overheated and under-resourced construction industry is to successfully deliver major infrastructure projects and the required volume of new homes on time, the headlines and attention must be re-focussed towards the less voter-friendly issue of skills-development across the construction sector.

Cavendish win on penalties: Supreme Court makes finger-tip save of ageing doctrine

Wed, 06 Jan 2016 07:41:00 Z

In the adjoined appeals of Cavendish Square Holding v Talal El Makdessi and ParkingEye Limited v Beavis the Supreme Court created a new authority for consideration of the penalty rule doctrine, termed by Lordships Neuberger and Sumption to be "an ancient, haphazardly constructed edifice which has not weathered well".

Under common law, it has long been established that if a contractual clause is determined to be a penalty, it will be unenforceable (although the claimant may still be able to claim general damages). This raises particular issues for parties who rely on pre-determined liquidated damages clauses to ascertain the rate of damages that are applicable for a particular breach, an important feature of many commercial contracts, particularly in the construction industry.

The case of Dunlop Pneumatic Tyre Company Ltd v New Garage & Motor Company Limited [1915] has traditionally been used as a leading authority on the penalty rule for the past century. In Dunlop Lord Dunedin formulated four tests to provide guidance in deciding whether a clause is a penalty for the purposes of enforceability and held that a clause requiring payment of a sum of money will be a penalty, and therefore unenforceable, if it cannot be said to represent "a genuine pre-estimate of loss".

Nevertheless, courts have struggled to apply standardised tests to determine the scope of the penalty rule and even the esteemed Lord Diplock declared in Robophone Facilities Ltd v Blank [1966] that he could "make no attempt, where so many others have failed, to rationalise this common law rule". In Cavendish Lordships Neuberger and Sumption criticised the "over-literal reading" of Lord Dunedin's four tests and a "tendency to treat them as almost immutable rules of general application which exhaust the field" - Indeed, they found that the clause in question in Dunlop would actually fail three of Dunedin's four tests if rigidly applied and the judgment would only be justifiable in reference to the wider commercial interests of the party seeking to uphold the clause, an aspect of the case cited in the judgment of Lord Atkinson.

Whilst the Supreme Court would not abolish the penalty rule entirely in Cavendish, as advocated by the appellant's counsel, the case restricts the grounds in which it would be applicable in a commercial context and holds that a clause that is not a genuine pre-estimate of loss should not necessarily be deemed penal.

Facts of Cavendish Square Holding v Talal El Makdessi

Mr Makdessi founded a group of companies which became the largest advertising and marketing communications group in the Middle East. The simplified facts of the case are that in 2008 Mr Makdessi and Mr Ghossoub, who both predominantly owned the holding company, agreed to sell their majority interest in the company to Cavendish, such that Cavendish would own 60% of the share capital and Mr Makdessi and Mr Ghossoub would retain 40%.

Mr Ghossoub agreed to remain an employee and director of the company and Mr Makdessi agreed to become a non-executive director and non-executive chairman for an initial period of 18 months. Payment for the shares was in instalments, and under the purchase agreement they would only receive all of these payments if they did not default on their duties. Shortly before trial Mr Makdessi conceded that he had breached his duties, such that he constituted a Defaulting Shareholder, as he continued to provide his services to a rival agency and additionally set up competitor agencies in Lebanon and Saudi Arabia, poaching staff from the company he owned with Cavendish. This triggered two clauses which had the effect of substantially deflating the purchase monies paid to Mr Makdessi. Mr Makdessi argued that the clauses should be held to be unenforceable under the penalty rule.

When the case was heard at first instance Burton J considered that both clauses had been the subject of detailed negotiations between sophisticated commercial parties which would negative any element of oppression. He determined that the clauses were not penal, were not designed to deter and that each clause had a legitimate commercial purpose.

The Court of Appeal disagreed, determining, in reference to Dunedin's four tests, that the clauses constituted penalties as they were "not genuine pre-estimates of loss" and were "extravagant and unreasonable". Although stating that this in itself was not conclusive, on the facts of the case the court determined that the clauses were not commercially justifiable but were rather designed to act as a deterrent and were therefore penal.

ParkingEye v Beavis

Prior to the hearing at the Supreme Court the case was joined by ParkingEye v Beavis.

ParkingEye allowed people to park their cars outside a retail park for a maximum of two hours at no cost. There were a number of conditions to this, most importantly that if the two hours of free parking were exceeded, a penalty fare of £85 would be incurred. Both the Court of First Instance and the Court of Appeal determined that this did not constitute a penalty, largely due to the fact that it was in the legitimate interests of ParkingEye to make such a charge in order to facilitate a high turnover in the car park.

Although the factual matrix of ParkingEye bore no resemblance to Cavendish, both cases concerned clauses which had nothing to do with compensating for breach.

Judgment

In a judgment spanning 123 pages and handed down on 4 November 2015, the Supreme Court rejected that the clauses in Cavendish and ParkingEye constituted penalties and accepted that there was a legitimate commercial justification in both matters, which extended beyond what would amount to a "genuine pre-determined estimate of loss", as per Lord Dunedin's dictum in Dunlop.

In Cavendish the judgment was predicated on the basis that the purchase agreement was made between commercial parties with equal bargaining power. A majority of four Lordships held that "In a negotiated contract between properly advised parties of comparable bargaining power, the strong initial presumption must be that the parties themselves are the best judges of what is legitimate in a provision dealing with the consequences of breach".

The Supreme Court agreed that the fact that a clause may not be a "genuine pre-estimate of loss" would not necessarily result in it being determined as penal. They set out the real test as being "whether the clause is a secondary obligation which imposes a detriment on the contract breaker which is out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation".

It was found that Cavendish had a legitimate interest, extending beyond recovery of the related loss, in ensuring that Makdessi observe the restrictive covenants. His loyalty was important to the business and much of this goodwill was vested in Mr Makdessi; breach meant that the business was worth much less to Cavendish. A clause which would allow the innocent party to withhold a sum of money upon breach was in proportion to Cavendish's legitimate interest as it revised the basic price calculation for the shares, shares which had been negotiated between "sophisticated, successful and experienced commercial people bargaining on equal terms over a long period of time with expert legal advice".

The court held that the same interests also determined the second clause in question, which granted Cavendish an option to force Mr Makdessi to sell his shares at Net Asset Value, ignoring the price of goodwill. The option reflected the reduced price which Cavendish would have been willing to purchase the business without the loyalty of Mr Makdessi and Mr Ghossoub. The Supreme Court thus determined this clause was in proportion to Cavendish's legitimate interest.

In reference to the ParkingEye matter, the court determined that the £85 fee was not penal as it had two main legitimate objectives, to manage the efficient use of parking space in the interests of the retail outlets and to provide an income stream to ParkingEye to cover the costs of the scheme. His Lordships Neuberger and Sumption further held that "deterrence is not penal if there is a legitimate interest in influencing the conduct of the contracting party which is not satisfied by the mere right to recover damages".

Current position of the law

The current test effectively has two constituent elements. If the clause both protects a legitimate business interest and is not extravagant, exorbitant or unconscionable it will not be a penalty.

As noted above, the new test for the penalty rule was set out by the Supreme Court to be "whether the clause is a secondary obligation which imposes a detriment on the contract breaker which is out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation". Unhelpfully, the Lords could not agree on the distinction between a primary and secondary obligation, and this is likely to be the subject of further dispute in the future. To confuse matters further, the Supreme Court has not definitively stated that a primary obligation will never be a penalty.

An innocent party must have a legitimate interest in the performance of a primary obligation. In its simplest terms, this interest may simply be compensation; however this interest could extend further and the parameters of what constitutes a "legitimate interest" have not been delineated. Therefore, it may be prudent for a party to clearly identify and set out their commercial interests within the preamble to their agreement, or even in the liquidiated damages provision itself.

Titan v Colliers – the price of everything and value of nothing

Wed, 30 Dec 2015 07:53:00 Z

Originally, the High Court found that the defendant's valuation of a German commercial property had been negligent.

The Claim

Having relied on a €135 million valuation made by Colliers in 2005, Credit Suisse made a loan of €110 million to the landlord, who transferred the majority of the loan to Titan. Following the landlord's default in 2009, the property was then resold for only €22.5 million.

Titan sought damages, alleging that the value of the property in 2005 had been €76.6 million.

With the true value of the property assessed as being €103 million ie over the 15% bracket of reasonable valuations/over the set margin of error in surveyors and valuers negligence claims, the High Court Judge found Colliers liable.

The Appeal Decision

The main ground on appeal was that the true value of the property had actually been higher than €103 million and indeed the Court of Appeal assessed that the true value of the property was €118.3 million, meaning that the valuation fell within the 15% margin of error and therefore that Colliers had not been negligent.

Assisting this decision were the following points:

only six months prior to the fateful valuation, the property had been sold for €127.1 million and the High Court Judge had incorrectly proceeded without regard to evidence of an actual sale;
on three different occasions between 2003 and 2005 the property had been valued by other firms at between €114.7 million and €134.5 million; and
the High Court Judge has not taken into account the rising market in 2005.

Comment

It is welcome that the Appeal Judge adopted a more accurate approach to valuing the property, rather than settling on a figure between the valuations made by opposing experts in court.

It must also be positive that the Court of Appeal recognised that the pre-crash rising market was a relevant factor to be taken into account.

Following the Court of Appeal judgment, Titan's solicitors said that they are considering an application for permission to appeal to the Supreme Court.

No returns for M&S following Supreme Court ruling

Fri, 11 Dec 2015 08:03:00 Z

The issue was, where rent is payable quarterly in advance and a break date falls between the quarter days, whether the full quarter's rent paid by M&S for the final quarter should have been apportioned so that M&S could recover the balance of the rent from the break date to the end of the quarter.

The Supreme Court unanimously upheld the decision of the Court of Appeal which decided that there was no implied term in M&S's lease whereby rent was to be apportioned. Therefore, M&S was liable to pay a whole quarter's rent, despite the fact that the break date fell soon after a quarter day and a break premium had already been paid.

The facts and case history

M&S was the tenant and BNPP was the landlord under four sub-underleases (the Lease) of different floors in premises in Paddington Basin, London.

The key points in the Lease were:

The basic rent was to be "paid yearly and proportionately for any part of a year by quarterly instalments in advance on the [usual] quarter days". The relevant quarter date was 25 December 2011
clause 8.1 entitled M&S to determine the Lease by giving the landlords six months' written notice (a "break notice") to take effect on 24 January 2012
clause 8.4 provided that a break notice would only take effect on the first break date "if on or prior to the first break date the tenant pays to the landlord the sum of £919,800 plus VAT [(the Break Premium)]".

In July 2011, M&S gave notice to terminate its Lease on 24 January 2012. M&S paid the rent and service charge for the full quarter from 25 December 2011 to 24 March 2012 and payment of the Break Premium was made to BNPP a week before the break date. The conditions being met, the Lease subsequently terminated on 24 January 2012. M&S issued proceedings to recover the rent and service charge, which it claimed should be apportioned, so that the sums paid for the period from 24 January 2012 to the end of the quarter should be repaid to M&S.

There was no express apportionment clause in the Lease which would allow M&S to recover the apportioned element, however, the High Court implied such a term to this effect. BNPP appealed in relation to the rent but not service charge, which it accepted was repayable.

The Court of Appeal did not agree with the High Court. The Court of Appeal found that, if there is no such express term in a lease, then none should be implied.

The Supreme Court's decision

The Supreme Court unanimously upheld the Court of Appeal's decision, finding that, as the effect of the current case law was that rent payable in advance could be retained by BNPP, save in exceptional circumstances, express words would be needed to imply such a term into a lease.

Lord Neuberger, who handed down the main judgement, thought there was some force in M&S' argument that, under a modern commercial lease, each quarter's rent paid in advance can fairly be said to be for the tenant's use of the premises. Therefore M&S would be unfairly prejudiced and BNPP would receive a windfall if the rent was not apportioned and repaid. M&S also argued that the Lease provided that the rent was due "proportionately for any part of a year" so that if it had paid the Break Premium before 25 December 2011 (the quarter day) then it would have been clear that the Lease would break on 24 January 2011, and M&S would then only have been required to pay apportioned rent for the next quarter. M&S argued that common sense meant that the position should not be different just because M&S paid the £919,800 in January 2012. Lord Neuberger agreed, but did not consider that this was enough to justify implying a term into the Lease allowing the rent to be apportioned.

BNPP relied on the fact that the Lease was very detailed, had been entered into by experienced parties and was negotiated and drafted by expert solicitors. In addition, clause 8 clearly showed that the parties had thought about what payments were to be made. This, BNPP argued, made it inappropriate for the Court to step in.

Lord Neuberger preferred BNPP's arguments, finding that implying a term into the Lease was not required for business necessity or because it was obvious and went without saying that the rent should be apportioned. Lord Neuberger concluded that the Lease was a very full and carefully considered contract, which included express obligations about financial liabilities. It had also been agreed against a legal background where rent paid in advance was not apportioned on a time basis.

Accordingly, M&S' appeal was dismissed and M&S could not recover the rent paid in advance.

Points for tenants to note

This decision is significant in relation to all commercial contracts, but from a real estate perspective it is a reminder to consider all contractual terms carefully, both when negotiating a lease and when deciding how to implement its terms.

Specifically, it also highlights the importance for tenants to comply with break conditions and to negotiate, at an early stage, an apportionment clause into their leases to ensure there is express provision to recover any overpaid rent.

If there is no express provision in the lease allowing apportionment, tenants should pay the full rent up to the end of the quarter and then seek repayment later, but apportionment and repayment will be at the landlord's discretion.

Squatting: an own goal?

Tue, 01 Dec 2015 08:08:00 Z

However, the squatters were given the owners' blessing to stay in occupation of the premises for the duration of the winter months, on the condition that they allowed surveyors to access the property when required. Who were these owners? Manchester United stars, Gary Neville and Ryan Giggs.

While Neville and Giggs' actions can be commended, one wonders whether this could be an own goal if possession is not willingly given up by the squatters in the future. There are many commercial property owners who know all too well the perils of squatters on their property, the damage that can be caused and the time and expense that can be incurred in obtaining possession. If damage has been caused, a commercial property owner may call the police, however, unless there are clear signs of criminal damage the police can be reluctant to get involved.

As a reminder, if it has been 28 days or less since a commercial property owner found out their property was being squatted, an application can be made for an interim possession order (an "IPO"), with a hearing for a final possession order being held within seven days of the IPO being granted. The more commonly used procedure to obtain possession is to issue a summary possession claim in the local county court. This can be done relatively quickly although there must be at least 2 days between the service of the claim form on the squatters and the hearing date. At the hearing, which would more often than not fail to be attended by any of the squatters, the court would usually make an order requiring the squatters to give up possession immediately. Enforcement of the order can be sped up by having the claim transferred to the High Court so that the High Court Enforcement Officers can carry out the eviction more quickly.

The position is altogether different for residential properties. On 1 September 2012, squatting in residential buildings became a criminal offence, punishable by a maximum penalty of six months' imprisonment, a fine or both. The offence was created by section 144 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (the LAPSO) and was introduced to protect homeowners and lawful occupiers of any type of residential building. The offence is committed when:

a person is in a residential building as a trespasser having entered it as a trespasser
the person knows or ought to know that he or she is a trespasser
the person is living in the building or intends to live there for any period.

The criminalisation of residential squatting has been criticised by groups such as Empty Homes, a charitable organisation which campaigns for more empty homes to be brought into use for the benefit of those in need of housing. In September 2015 they estimated there were 610,000 empty homes in England, more than 200,000 of which are thought to have been empty for more than six months.

Although section 144 LAPSO has seemed to benefit the owners of residential premises, there have been criticisms that the criminalisation of squatting in residential property has only led to an influx in squatting of commercial property.

While there is potential for the government to extend the criminal offence to commercial property, no changes are expected imminently.

For now, some tips to prevent squatting in commercial property include:

ensuring the property is secure and alarmed
arranging for the property to be patrolled regularly if necessary
turning off and disconnecting utilities to make the property less attractive to potential squatters
securing the property as soon as it become unoccupied through surrender, forfeiture or lease expiry.

Tribunal criticizes HMRC’s refusal to allow retrospective VAT group application

Fri, 27 Nov 2015 08:16:00 Z

The taxpayer group is in the housebuilding business. Generally-speaking any VAT incurred by the group on land purchases was fully recoverable, as the group made zero-rated supplies of newly-constructed houses.

However, on certain historic purchases of VAT-opted land a VAT cost had arisen as the group SPV acquiring the relevant property (by way of a sub-sale from the immediate taxpayer purchaser) had not been added to the taxpayer VAT group. As the immediate purchaser had not validly opted to tax the property, a VAT exempt supply had taken place, precluding VAT recovery. Had the relevant SPV been added to the VAT group, such exempt supply would have been disregarded.

It was held that:

the finance administration function of the taxpayer, at the relevant time, was in a state of “some chaos”. The failure to add the relevant SPVs to the VAT group was not deliberate, but was a genuine error. All subsequent transactions took place on the basis of a (mistaken) assumption that the SPV were part of the VAT group
the modified HMRC policy on retrospective VAT group applications makes a distinction between taxpayer error (which can seemingly never meet the required “exceptional” circumstance criteria) and HMRC error (which seemingly are “exceptional”)
HMRC were being far too restrictive in applying the “general” discretion available under section 43B of the Value Added Tax Act 1994. The change to HMRC’s published policy, introduced after an earlier Tribunal decision in the same case that HMRC should reconsider its decision, was a “somewhat cynical endeavour to leave the policy substantially unchanged”
continued refusal to allow retrospective VAT group registration in this case was not justified on the basis that HMRC had, on four separate occasions, listed for the taxpayer those group companies that were part of the VAT group.

It remains to be seen whether HMRC will now amend its published policy so that retrospective VAT group registration could be possible where the failure arises due to genuine taxpayer error and the effect (of not registering as part of a VAT group) leads to a material net VAT cost for the taxpayer.

Office to residential development crusade continues

Fri, 16 Oct 2015 08:28:00 +0100

In addition, new permitted development rights will allow a change of use for light industrial buildings (including, for those that are interested, launderettes) and the right will, in future, allow the demolition of office buildings and new building for residential purposes. Both of these additional rights will be subject to limitations and prior approval by the local planning authority, but further details have not yet been provided.

Where there are already permissions in place, developers will have three years to complete the conversion, but it is not clear from Housing and Planning Minister Brandon Lewis' statement, when the three year period would begin or what is meant by "complete" (a concept which has already been the subject of much debate).

For those developers in the City of London (and in the 16 other local authorities where the exemption regime applies – the effect of the exemption regime is that these 17 local authorities still require a full planning application for a change of use from office to residential) the current exemption regime will continue until May 2019, after which all exemptions will be removed. If those local authorities want to continue to require a planning application for a change of use from office to residential, then they must make an Article 4 direction before May 2019.

Whilst these changes no doubt give developers the certainty they were looking for and offer increased flexibility for a number of buildings across the country, the changes are unlikely to satisfy the Minister's aim of providing a million new homes by 2020 (bearing in mind that just 4,000 conversions were approved between April 2014 and June 2015) and, with the ability for the City of London to continue its exemption beyond 2019, the changes may bring fewer smiles to the faces of the capital city's developers.

MEES: The legal implications

Wed, 02 Sep 2015 08:44:00 +0100

I have looked at a relatively narrow area of who will bear any costs of "improving" properties, the landlord and tenant relationship as well as the effect MEES might have on lenders. I will leave the mystery of valuation to the surveyors!

Summary of MEES

MEES provide that where a building's EPC is rated below E, works will have to be carried out to bring the building's EPC rating up to an E. Landlords who fail to carry out such works before entering into a commercial lease lasting between six months and 99 years will be subject to a civil fine.

There are three formal exemptions:

if the works will not pay for themselves over seven years.
if any third party refuses consent which is necessary for the works.
if the works, if carried out, would reduce the property's capital or rental value by over 5%.

Who should pay for the works?

Given that the obligation on compliance rests with the landlord and the current trigger for compliance is on new lettings, it seems that the landlord should be liable for the cost of the works. But ultimately the wording of the lease will decide who will bear the cost.

Most tenants are under a repair obligation. This obligation will be very comprehensive where the tenant has a lease over the whole building. Where it has only rented part of the property the repair obligation will be limited to the internal envelope and the landlord will recover the cost of works to the common areas and the mechanical and electrical equipment etc through a service charge.

A fairly drafted lease will only relate to repair and will not oblige the tenant to pay for any improvements to the property. However the renewal or replacement of subsidiary parts of the building or premises is within the concept of repair and that may then involve the incidental making of improvements.

The test for whether works constitute an improvement rather than a repair is as follows:

Do the works go to the whole as opposed to just a part of the premises?
Would the works create a building of wholly different character to the building let to the tenant?
Are the costs of the works in relation to the value of the property so high as to be disproportionate? Or would the works materially increase the value or lifespan of the building?

So it will be a question of fact and degree as to whether works carried out under MEES would be considered an incidental improvement in the course of carrying out repairs (and so paid for by the tenant) or works that are intended solely or principally to effect improvements so that the tenant would give back to the landlord something different from that which was let to him (and so paid for by the landlord).

Interestingly, the Service Charge Code for Commercial Leases advocates that sustainability and improved environmental performance should be taken into account when carrying out any cost-benefit analysis of improvement costs above the normal cost of repair. The guidance also suggests a fair and reasonable approach to apportioning the cost of works that improve the environmental performance of the building or its sustainability.

Leasehold implications for landlords and tenants

As the implications of a reduced EPC rating are now tangible, it is likely that an obligation that the tenant does nothing to the premises that will affect the EPC rating will become a standard leasehold provision.

Many leases – especially on certain office developments – require the tenant to yield up the property at the end of the term stripped back to a certain specification. In the future, drafting flexibility into the lease so as to allow for improved energy efficiency standards to remain in the property would be sensible and would benefit both the landlord and tenant.

If a landlord wants to comply with MEES and undertake the necessary works then it will also be in his interests to ensure that the lease allows him unilateral entry to carry out the works. In addition, where the landlord is obliged to provide services, carrying out the improvement works may interrupt this provision of services. In such circumstances he would be well advised to reserve the right to interrupt the services so long as there are sufficient safeguards for the tenant.

Ultimately, if we are to see the promotion of energy efficiency, lawyers should ensure that their drafting encourages compliance with MEES rather than just imposing a number of additional obligations on the landlord and tenant.

Implications for lenders

Lenders tend to have a very cautious approach to anything that might affect the value of the property or the income it generates during the term of the loan. Until the market has adjusted, MEES may have an uncertain impact on property values and the income stream derived from the asset. It is interesting that one of the exemptions, the requisite consents carve-out, specifically includes obtaining lender consent to improvements.

In the short term, lenders will be most concerned where they have lent on portfolio transactions where a significant proportion of the tenancies to which secured properties are subject are due to expire during the life of the loan. These properties will have to be re-let and MEES will apply to the new lettings.

In the longer term, future deals are likely to be affected by a lender’s appetite for risk. Lenders may be wary of the following:

Particular asset classes which are more likely to fall below the minimum standards. For example, old buildings that have not been modernised are unlikely to have been made more energy efficient.
Assets where the necessary improvements will be expensive (but less than 5% of the overall value of the property) and so are likely to have an adverse impact on value or where fines for non-compliance would be high (e.g. very old buildings which are difficult to modify).
Portfolio transactions where a large number of the assets in the portfolio are affected by MEES so the aggregate cost of improvement works and/or fines becomes a more material issue.

Conclusion

There is no doubt that MEES, if fully implemented, will herald a number of changes to how leases are drafted and to how lenders decide whether to invest. However, whilst drafting can be used to facilitate smooth compliance with MEES it is essential to ensure that the resulting leases (and how they are interpreted) provide as few barriers to change as possible rather than simply imposing a new raft of "green" obligations on either party.

Service charge interpretation and the cautionary tale of Arnold v Britton

Mon, 17 Aug 2015 08:49:00 +0100

The Supreme Court held that whilst the provision might lack commercial purpose now, the wording of the lease was sufficiently clear and they would not rewrite a bad bargain. Lord Neuberger PSC commented:

"While commercial common sense is a very important factor to take into account when interpreting a contract, a court should be very slow to reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed, even ignoring the benefit of wisdom of hindsight. The purpose of interpretation is to identify what the parties have agreed, not what the court thinks that they should have agreed."

The case

This case concerned 21 lessees who held 99 year leases of chalets on a leisure park. Each lease contained a covenant which differed slightly but with the effect that the lessee was to pay "a proportionate part of the expenses and outgoings incurred by the lessors in the repair, maintenance, renewal and the provision of services [as set out in the lease] in the yearly sum of £90" and, pursuant to clause 3(2) of the lease, an annual 10% compound increase on that service charge.

By 2011 the lessees of the chalets were paying a service charge of over £2,700 per annum, which would increase to over £550,000 per annum by 2072. The lessees argued that an interpretation of the clause which required a fixed sum payment resulting in such an absurdly high annual service charge could not be right and that clause 3(2) should be read as requiring the lessees to pay a variable sum, "being a fair proportion of the costs of providing the services with the specified sum being no more than a cap on the maximum sum payable".

The Supreme Court rejected the lessees' argument and held that the wording of clause 3(2) was clear and the court would not depart from the natural meaning.

Lord Neuberger stated in his judgment that "commercial common sense is not to be invoked retrospectively. The mere fact that a contractual arrangement, if interpreted according to its natural language, has worked out badly, or even disastrously, for one of the parties is not a reason for departing from the natural language".

Comments

Where lease wording is ambiguous the courts are often minded to take a commercial approach in deciding how best to interpret the clause in dispute. However, as demonstrated in this case, where the wording is clear there is no reason to depart from the natural meaning, even if it results in a bad bargain for one party.

Further, the leases were granted in the 1970s when there were high levels of inflation in the UK, therefore the 10% increase on service charge could not have been said at that time to have lacked commercial purpose. Just because the lessees did not like the outcome some years further down the line, this did not provide a just reason for the court to reinterpret the meaning of the lease clause.

There are many cases on ambiguous lease wording, however where the lease wording is clear, as in this case, even if it is not what the parties (or at least one party) intended the court will be unwilling to re-interpret the lease wording. Care must therefore be taken when drafting leases that the terms are sufficiently clear and unambiguous and regard is given to what may happen in the future – a lease term that seems reasonable now might not be reasonable in 70/80/90 years.

[1] [2015] UKSC 36

Business Rates: Don't pull the Woolway over your eyes

Thu, 13 Aug 2015 08:55:00 +0100

The case of Woolway v Mazars^[1]is being hailed as a landmark case for the future of business rates in England & Wales, and will also have a major impact on the Valuation Office rating list.

What are business rates though? Effectively, they're council tax for commercial property. Rates are calculated by the Valuation Office, who work out the rateable value of your property (broadly speaking, the open market annual rent) and multiply it by a standard multiplier. The rateable values are then added to a list for businesses to compare their own rateable values with.

In the case of Mazars, the Supreme Court considered whether Mazars' occupation of two separate floors of Tower Bridge House in St Katharine Docks should be entered into the rating list as separate hereditaments or a single hereditament. If entered as a single hereditament, Mazars could make a significant saving on the business rates it paid.

The case has rattled on for five years, making its way through four courts, three of which ruled it was a single hereditament. Unfortunately for Mazars, in the decision that really mattered, the Supreme Court deemed it to be separate hereditaments.

In its decision, the Court dismissed the previous leading English case on hereditaments, Gilbert v Hickinbottom^[2]as "unsatisfactory", and instead opted to follow the more logical steps taken by our Scottish neighbours.

The Court looked at three principles in deciding whether the occupation of separate floors constitutes a single hereditament:

Geography
Functionality
Enjoyment

Reviewing the geography of the tenancy, the panel considered that Mazars would have to leave the confines of their tenancy and use the lifts or stairs in the common parts (whilst trying to avoid an inevitable static shock from the Tower Bridge House lifts!) to move from one level to the other. They deemed this the same as leaving a building and re-entering another, which would undeniably be considered separate hereditaments.

However the Court didn't completely rule out it being a single hereditament just because it didn't fit the geographical test. Instead, it also considered the functionality of the space― was the use of one floor necessary for the enjoyment of the other?

The Court defined the phrase "enjoyment" used in the functionality test as being dependent on the objectively ascertainable character of the property, not the business needs of the ratepayer. In Mazars' case, neither the functionality nor the enjoyment test were found to be applicable to the facts, and it wasn't considered a single hereditament.

But in reality, what does this all mean for ratepayers? Well the key issue for Mazars, and any other ratepayers in a similar position, is that with a tenancy over separate floors now considered as separate hereditaments, they may receive a reduced discount on any business rates paid. And for future tenants (and their lawyers) it provides another consideration to think about when reviewing the potential costs of a tenancy.

[1] Woolway v Mazars [2015] UKSC 53

[2] Gilbert v Hickinbottom [1956] 2 QB 40

"That don’t distress me much …"

Fri, 31 Jul 2015 09:00:00 +0100

Developers will be sure to welcome such a result but might not be quite so happy about the potential rise in complaints – peak periods of construction often lead to an increase in defects and snagging items resulting from lower quality contractors.

This common complaint from developers has prompted us to take a look at how compensation for distress and inconvenience arising out of defects and/or snagging items is quantified.

This question was considered in West v Ian Finlay & Associates^[1], a case in which a couple and their baby son were forced to move out of their home in order for major remedial works to be carried out by their contractor. The house required damp proofing works and the refitting of a new kitchen.

In its judgment the Court of Appeal made some useful comments on the amount that claimants are entitled to for distress and inconvenience arising out of breach of contract:

Adjusted for inflation from the 2007 AXA Insurance UK plc v Cunningham Lindsay UK case, the maximum damages recoverable will generally be £3,000 per person per annum where there are no particular physical symptoms or illnesses caused by the breaches.
A mother with small children will likely be entitled to higher damages per annum (albeit still within the £3,000 indicative maximum) as the defects and any remedial works will impact her more, given her concern for her children.
A baby will be less affected than an adult or an older child and so will only qualify for a much lower level of damages.
There was a suggestion that where a family has to move out of their home rather than live with the defects and the remedial works, then the damages should be lowered.

The level of stress and anxiety suffered by the family in West was judged to have been significant, but not at the top end of the £3,000 maximum, despite the fact that the Wests' baby had once passed out from inhaling paint fumes. The judgment awarded Mrs West £2,000, Mr West £1,500 and their baby son £500 per annum.

So whether or not George Osborne's promises in regards to housing are actually realised, at least developers can rest easy knowing they can determine realistic settlement sums should they find themselves facing unhappy purchasers.

[1] [2014] EWCA Civ 316

Summer Budget – property developments

Tue, 14 Jul 2015 09:07:00 +0100

Much like the rest of the measures announced, those related to property give with one hand and take away with the other…

1. Residential landlords – reliefs restricted

Finance costs

From April 2017, individual landlords of residential property will lose some of their current tax relief on finance costs.

Currently, such landlords can deduct finance costs (notably mortgage interest) when calculating their tax on rental income. This gives rise to tax relief at 40% or 45%, for wealthier landlords.

Such landlords' relief will be restricted to the basic rate of income tax (20%). The restriction will be phased in over four years from April 2017.

The change is designed to address the current preferential treatment for landlords, as opposed to homeowners, and also stem the rapid growth of buy-to-let mortgages.

Wear and tear

From April 2016, residential landlords of furnished properties will only be able to deduct from their taxable income the actual costs of replacing furnishings. Currently there is a 10% annual "wear and tear allowance", irrespective of actual expenditure.

2. Inheritance tax changes

New "main residence" allowance
From April 2017 a transferable "main residence" allowance will be introduced. This move was set out in the Conservative Party's 2015 manifesto.
When a person's main residence is, on death, passed to direct descendants (children or grandchildren) a transferable allowance (effectively a new nil-rate band) will be available. Initially the amount of the allowance will be £100,000 (in 2017/18) but it will gradually increase to £175,000 (by 2020/21).
The current nil-rate band (of £325,000) will continue to be available. From 2020/21 there will therefore be an effective £500,000 inheritance tax threshold. The new main residence allowance, like the current nil-rate band, will be transferred to a surviving spouse or civil partner, if unused.
Non-doms
Along with other proposed changes to the UK's controversial and, in the run-up to the election, much debated, "non-domicile" tax regime, the Chancellor also announced a change to the interaction between the inheritance tax and non-dom rules.
From April 2017, inheritance tax will be payable on all UK residential property owned by non-doms, regardless of their UK residence status. A consultation on this change will take place later this year.

Forfeiture ... that's a relief

Wed, 17 Jun 2015 09:13:00 +0100

Forfeiture must generally be preceded by the service of a section 146 Notice under the Law of Property Act 1925, however such notice is not required for non-payment of rent and in addition, no formal demands for rent need to be made if the forfeiture clause states that the landlord may re-enter if the rent is in arrears 'whether or not formally demanded'.

A landlord must be careful not to expressly or impliedly waive the right to forfeit though; an unequivocal act by the landlord or his agent that recognises the existence of the lease after the right to forfeit arises will result in waiver of the right. This is most commonly done by accepting rent from the tenant.

On the other side of the coin, relief from forfeiture is a useful remedy available to a tenant following a landlord exercising its right to forfeit. A tenant cannot apply for relief from forfeiture for breaches of covenant other than for non-payment of rent after a landlord has forfeited the lease by court proceedings and has taken possession. However where entry is obtained peaceably (by the landlord changing the locks to the premises), the tenant retains the right to apply for relief even after the landlord has taken possession of the property.

The courts have a wide discretion whether to grant relief from forfeiture and will often grant it if the tenant either remedies the breach or pays compensation (if the breach cannot be remedied), however the court must be satisfied that the tenant will carry on performing its obligations under the lease.

The Court of Appeal case Magnic Ltd v Ul-Hassan and another (2015), has provided further guidance on this issue. The tenants ran a pizza takeaway without planning consent in breach of a covenant not to violate the Town and Country Planning Act 1990. The landlord served the requisite section 146 Notice hoping to forfeit the lease. A possession order was obtained on 14 January 2011 on the basis that if trading ceased by 11 February 2011, relief from forfeiture would be granted. The possession order was stayed on 8 February 2011 pending the tenant's appeal, but, crucially, the tenants continued to trade until 31 May 2011 when the stay was lifted. The landlord then sought a declaration that the lease had been forfeited as the tenants had continued to trade after the 11 February deadline. The tenant's application for relief (on the basis that the stay extended the possession order deadline) was rejected first by a district judge and then by the County Court before being allowed by the Court of Appeal.

The court mentioned a number of points which had swayed their decision. First, the landlord would have been able to significantly increase its financial wellbeing by setting a market rent from a new tenant if the lease was forfeited. Second, the tenants ceased trading as soon as their appeal was dismissed, indicating that they would have ceased trading on the trading deadline had the stay not been obtained. Third, the tenants' conduct was not deliberate – they had an honest belief that what they were doing was correct and they relied on legal advice saying that the stay had extended the deadline for trading. As a result, the court granted relief from forfeiture on the basis that the tenant's decision to continue trading was reasonable, not a deliberate disregard for the law.

It is clear going forward that the courts will take into account all the circumstances in a given situation, including a tenant's intentions and whether any decision would be disproportionate or unjust. It is now evident that the purpose of reserving a right of re-entry is to give a landlord security for the performance of the tenant’s covenants – forfeiture should not be used as a penalty on a tenant for their breaches.

Legal Lasers

Fri, 12 Sep 2014 09:19:00 +0100

For an employer looking to use an information rich model when renovating existing portfolios or managing existing assets 3D laser scanning can provide the first step in reaching a solution.

3D scanners survey existing buildings using lasers to measure a large number of points across the surfaces. A 'point cloud' of these geometric points gives a digital representation of the scanned asset. This three-dimensional view of the points measured by the scanner can then be converted to a mesh, NURBS or CAD model through a process known as surface reconstruction, or imported directly into a BIM-enabled package. Further detailed information can then be inputted into this model, providing the employer with a model embedded with data that can be used to design a renovation project or be used in managing an existing facility.

In procuring a 3D scanning service an employer might look to utilise a service agreement or appointment. Such an appointment should clearly state the client's requirements and the intended purpose of the survey, as well as giving clear and unambiguous definitions of any 3D scanning related terms.

Fundamentally such an appointment will not be massively different to appointments intended for any other form of surveying. The laser scanning service provider (the "Provider") will look to retain the IP associated with their work whilst granting licences for the data to be used by others. Such licences tend to be limited in terms of the Provider's liability should any modification, amendments, copying or loss of the data provided occur. Therefore the data can be incorporated into the Building Information Model by third parties and ultimately utilised by the employer but the Provider is protected against the risks of manipulation of the data inherent with such exposure.

Further, an employer will look to ensure that the Provider is obliged to deliver work to a defined standard utilising the relevant standard of skill and care. The Provider on the other hand may look to qualify such an obligation with the use of a 'reasonable endeavours' caveat should the work involved be highly complex or involve a large degree of close collaboration requiring reliance on other parties.

Appendices containing the services should detail technical requirements such as the level of detail required and which exchange format is to be used for deliverables. If the survey data is intended to be utilised within a Building Information Model the readiness of the data and the type and format of final deliverables required should be included.

As well as providing a great base level of data for the beginning phase of a construction project, 3D laser scanning can be employed in resolving construction disputes. Accurate measurements obtained just once or over a period of time could be very telling and prove to be crucial in certain defects disputes. Furthermore, a model created from the point cloud data can provide a very effective way of displaying a defect. Such a 3D visualisation can assist with the understanding of the construction project and also the detail of the defect itself.

3D laser scanning is, therefore, a perfect example of the law assisting in the application of technology and technology assisting with the application of the law. To find out more about the increasing interaction between construction law and construction technology join us at our seminar focusing on the technologies building the construction industry of the future on 16 October 2014.

Let's talk about VAT – a useful reminder

Thu, 14 Aug 2014 09:23:00 +0100

The facts of the case are slightly unusual, and the decision surprising in some respects (at least at first glance).

1. The Seller sold a commercial property freehold to the Buyer for £130k. Although the Seller had opted to tax the property for VAT purposes, the Seller made no mention of this (and it seems the Buyer did not ask the question) at any point during the protracted negotiations. Some time after completion of the sale, once HMRC had assessed the Seller for the VAT, the Seller asked the Buyer for the VAT on the purchase price.

2. The sale contract incorporated the standard conditions of sale (4th edition), even though the sale was of commercial property. The incorporated standard conditions stated that (i) any obligation to pay money includes an obligation to pay any related VAT, (ii) all sums payable under the contract were exclusive of VAT, and (iii) any liability to perform an outstanding obligation under the contract survives completion. However the special conditions, which took priority over any conflicting standard conditions, defined the "Purchase Price" as simply £130k.

3. The Court held that the sale contract, properly construed, did not oblige the Buyer to pay the VAT amount. The Seller therefore had to account to HMRC for VAT out of the £130k.

4. The Court's reasoning was that it is necessary to consider what a reasonable person, with "all the background knowledge" at their disposal, would have understood the contracting parties to have meant. Of critical importance to the Court seems to be that, on the facts of this case, the purchase monies were agreed and paid a considerable time prior to completion. The Seller, through its lawyers, confirmed that it had received "all of the sale monies of £130k on this matter", with no mention of VAT. In response to the standard requisition seeking confirmation of the exact amount payable on completion, there was again no mention of VAT.

The decision can be found here.

[1] [2014] EWCA Civ 1103.

Be careful what you dig for

Fri, 20 Jun 2014 09:30:00 +0100

Any damage to a "Scheduled Monument" as determined by the Secretary of State is an offence under the Ancient Monuments and Archaeological Areas Act 1979. Consideration of the history of the site is crucial in urban areas where there has been known historic settlement, but even for projects in more rural areas consideration must be given as to whether a development site may contain prehistoric bones or be a site of historic importance, such as a battlefield. Discoveries of human remains or metallic objects on the site of nationally important monuments should be screened to determine if they are subject to the terms of the Burial Acts or the Treasure Act 1996. So what does this mean for large and far reaching projects such as Crossrail and the Thames Tideway Tunnel ("TTT") and what can be learnt from them for smaller developments, particularly in areas of historical interest such as London?

The National Planning Policy Framework (“NPPF”) provides guidance on the basis on which local planning authorities may grant planning permission for historic environments: "as a minimum, the relevant historic environment record should have been consulted and the heritage assets assessed using appropriate expertise where necessary. Where a site on which development is proposed includes or has the potential to include heritage assets with archaeological interest, local planning authorities should require developers to submit an appropriate desk-based assessment and, where necessary, a field evaluation." If a developer's initial assessment of a site finds that uncovering items of archaeological interest is likely then the developer must submit a scheme to deal with any discovery which will become a condition of the planning permission.

Although many standard forms contain mechanisms by which a contractor could claim an extension of time for delay caused by archaeological finds it is common for developers to look to omit these and pass responsibility for the ground conditions onto contractors, who are also responsible for the programme. It is therefore imperative that the responsible party has detailed information about the risks of encountering artifacts and a scheme in place for if that risk materialises.

Both Crossrail and the TTT have frontloaded archaeological investigation and have prepared detailed schemes to deal with known and unforeseen areas of historical interest. Crossrail currently operates over 40 worksites and archaeological investigations will be carried out at each site ahead of the main construction works to build the central stations. An archaeological strategy (known as the Generic Written Scheme of Investigation) was prepared in consultation with English Heritage and County and local authority archaeologists to ensure a consistent approach across the route and throughout the life of the project. Crossrail also employs a team of archaeological specialists.

The TTT project has already published its Code of Construction Practice and an Overarching Archaeological Written Scheme of Investigation ("OAWSI"). The obligations on the contractor as regards the historic environment are set out in some detail. Contractors undertaking the work will be obliged to prepare a site-specific heritage management plan which must also include procedures for unexpected archaeological discoveries during the works and an emergency preparedness plan. The OAWSI states: "Where possible the intention is to take archaeological mitigation off the construction critical path and carry out as much work as possible prior to main construction activities commencing". By frontloading archaeological investigation and planning both projects have sought to mitigate delay and actively conserve historic environments.

What we can learn from big projects which take a proactive and stance regarding archaeology is that, as ever, preparation is key. Whether a developer seeking planning permission or a contractor undertaking the works, parties should be aware of the risks. This means a thorough desktop survey at the planning stage and where necessary, the appointment of specialist contractors. Contractors assuming responsibility for ground conditions will need to give thorough consideration to any agreed scheme dealing with unexpected finds and factor contingencies into the programme.

Right time for UK REITs

Tue, 22 Apr 2014 12:04:00 +0100

What are REITs?

Their main advantage is their tax efficiency: in return for paying out 90% of their cash flow, or rental yields, as dividends, they do not pay corporation tax or capital gains tax. REITs are popular with investors as they provide an opportunity to invest in a diverse range of otherwise unaffordable real estate. Further, as shares in REITs are easily traded they allow investors to avoid the liquidity issues traditionally associated with investing in property.

What has changed?

Under the previous REITs regime, only certain defined institutional investors were able to invest in REITs without violating rules against close companies. As the definition of institutional investors did not cover REITs themselves, REITs could not invest in one another or form joint ventures.

To remedy this, George Osborne announced in his December 2013 Autumn Statement that the definition of "institutional investor" should be widened to encompass REITs. The Treasury indicated its hopes that this would attract further institutional capital into the UK real estate sector and give UK REITs access to more financing opportunities. Regulations to implement this change came into force on 1 April 2014.

The changes provide three main benefits to the REIT sector. Firstly, joint venture REITs are now possible. This is a promising option in the current climate where debt finance is no longer as freely available as it once was. Peter Cosmetatos, director of finance at the British Property Federation notes that “Investor appetite for such joint ventures is holding up, as the number of investors able to enter into sizeable transactions on their own is reducing.” Secondly, it is possible for a REIT to have separate spin-off subsidiary REITs for particular assets, rather than one very general wide portfolio. This facilitates specialism by REIT investors. Thirdly, and importantly, the Regulations include overseas equivalents of a UK REIT in the definition of "institutional investor". This means that overseas REITs are able to invest in UK REITs. As well as promoting the transfer of international expertise, according to Liz Peace, chief executive of the British Property Federation, investments by overseas REITs will "ultimately increase the availability of capital to the UK market".

Is the money flooding in?

Not yet. Perhaps it's a bit too optimistic to have expected a huge influx in just the first weeks after the rule change. If, however, potential investors are hesitant, because they think this change has come too late with the best gains (in the current property cycle) having already been made, then surely they are mistaken. It could well be the case that the best gains have now been made in prime London offices but there is still plenty of capacity in retail and industrial and particularly in the regions. It is to be hoped that investors embrace the rule change, recognise the capacity that remains for returns on investment and provide the capital that is needed to propel the next phase of the UK property and, wider economy, recovery.

Right time for UK REITs

Tue, 22 Apr 2014 10:52:00 +0100

Their main advantage is their tax efficiency: in return for paying out 90 per cent of their cash flow, or rental yields, as dividends, they do not pay corporation tax or capital gains tax. REITs are popular with investors as they provide an opportunity to invest in a diverse range of otherwise unaffordable real estate. Further, as shares in REITs are easily traded they allow investors to avoid the liquidity issues traditionally associated with investing in property.

What has changed?

Is the money flooding in?

The New Draft ICC Conditions

Wed, 16 Apr 2014 12:11:00 +0100

Originally, the contract was known as the ICE Conditions of Contract but they were discontinued by the ICE in favour of NEC in 2010. Subsequently, ACE and CECA took them over and they issued the ICC Conditions.

The March 2014 update has so far been limited to the main contract conditions. However, the Forum will eventually turn its attention to other versions and related documents such as the CECA form of subcontract which currently exists in the 'Blue Form'. Ultimately, the entire suite of related contract forms will be reviewed.

What will be new?

The draft seeks to streamline, update and re-order the conditions whilst maintaining the balance of risk contained in the original ICC Conditions last republished in 2011. The Forum has successfully reduced the number of clauses from 70 to 20 (although there are a further 4 supplementary clauses). Notably, provisions dealing with the balance of risk, previously distributed throughout the 2011 Conditions, have been collected together in to a single clause (Clause 8). However, much of the wording of the original conditions is substantially intact.

Valuation

One of the main changes is that the quantities are no longer re-measurable (Clause 11). Rather, they are deemed to be fixed which essentially renders it a lump sum contract. The rationale behind the change is that it should now be possible to provide adequately measured Bills of Quantities at tender stage and subsequent re-measurement should not be necessary. However, re-measurement remains an option if it is expressly invoked.

Subcontracting

The provisions dealing with nominated subcontracting have been replaced by a much shortened provision under which the main contractor will take full responsibility for subcontractors, subject to the main contractor's right of objection (Clause 7.1-7.2). Any nominated subcontractor to whom the contractor objects may be employed directly by the employer and his scope of work will be outside the contract works.

Risks

Risks are categorised in Clause 8 into those which are excepted (for which the contractor is not liable), the employer's or shared risk. All other risk is to be borne by the contractor. Provisions dealing with the contractor's entitlement to additional payment fall under the 'Employer's Risk', whilst provisions entitling the contractor to an extension of time (but without financial compensation) are designated as 'Shared Risks'. Provisions relating to care of the works are treated as 'Excepted Risks'.

Dispute Resolution

The dispute resolution procedure, which previously extended across 3 pages, has been simplified to provide for the use of mediation, adjudication and arbitration, whether sequentially or as alternatives (Clause 19). There is also a provision which allows either party to refer a dispute to the engineer which, if invoked, will lead to a decision which is binding on the parties unless revised by adjudication or arbitration if referred within 28 days.

Other key changes

The engineer's power to order variations 'necessary for the satisfactory completion of the Works', which was previously very wide and could be used to 'improve' the original design, has been curtailed (Clause 12.1).
Additional payments arising from variations are recoverable on the basis of the delay or disruption for which the employer was responsible, rather than the power of the engineer to re-fix rates. This now includes recovery of loss and expense (Clause 13.3).
A relatively simple provision has been included to deal with BIM up to Level 2 (Clause 20) together with a clause to deal with copyright and intellectual property rights (Clause 4.11).
The contractor's final account must be submitted within six months after the certificate of substantial completion, rather than within 3 months of completion of defects correction as was the case previously (Clause 13.5).

The retention of the original balance of risk should mean that parties who have used earlier versions of the ICC Conditions should not come across too many surprises. Although, the most noteworthy move is to abandon the re-measurement provision meaning that all quantities will need to be provided on a fixed basis at the outset of a tender and any revision will necessitate a Variation.

It is yet to be seen whether the changes, once published, will enable the ICC Conditions to compete with NEC contracts. For your chance to review and comment on the consultative draft form, copies have been made available to members of the Society of Construction Law and can also be requested from ACE or CECA.

The New Draft ICC Conditions

Wed, 16 Apr 2014 10:55:00 +0100

What will be new?

Valuation

Subcontracting

Risks

Dispute Resolution

Other key changes

The engineer's power to order variations 'necessary for the satisfactory completion of the Works', which was previously very wide and could be used to 'improve' the original design, has been curtailed (Clause 12.1).
Additional payments arising from variations are recoverable on the basis of the delay or disruption for which the employer was responsible, rather than the power of the engineer to re-fix rates. This now includes recovery of loss and expense (Clause 13.3).
A relatively simple provision has been included to deal with BIM up to Level 2 (Clause 20) together with a clause to deal with copyright and intellectual property rights (Clause 4.11).
The contractor's final account must be submitted within six months after the certificate of substantial completion, rather than within 3 months of completion of defects correction as was the case previously (Clause 13.5).

Budget 2014 - update

Mon, 24 Mar 2014 12:19:00 Z

High value UK residential property

Since March 2012, a package of tax measures targeted at "high value" UK residential property held by "non-natural persons" (NNPs) has been introduced, in stages. These measures, subject to a number of exemptions for NNPs holding property for genuine commercial reasons, apply to UK residential property valued at over £2m and acquired or held by companies, partnerships with corporate members and collective investment schemes.

The original intention behind the package was to discourage the use of NNPs to hold such high value residential property as a means of tax avoidance.

It was announced in the Budget that these measures would be extended – again in stages – to UK residential property held by NNPs with a value in excess of £500k:

• from 20 March 2014 SDLT at 15% is charged on acquisition of such property by NNPs

• from 1 April 2015 (for such properties valued between £1m and £2m): the Annual Tax on Enveloped Dwellings (ATED) will apply, at an annual charge of £7k. CGT at 28% will apply to any gain (accrued since that date) on disposal by an NNP

• from 1 April 2016 (for such properties valued between £500k and £1m): the ATED will apply, at an annual charge of £3.5k. CGT at 28% will apply to any gain (accrued since that date) on disposal by an NNP

It has to be wondered how many NNPs are used for tax avoidance purposes to acquire and hold residential property within this lower valuation band. The extension of the rules feels more like a revenue-raising exercise (and one with an optimistic target of an extra £90m per year).

SDLT relief – property authorised investment funds

The Government will consult on the introduction of an SDLT relief for the seeding of property authorised investment funds (PAIFs). This would allow property to be transferred, without attracting an SDLT charge, between vehicles where the underlying

Budget 2014 - update

Mon, 24 Mar 2014 10:40:00 Z

High value UK residential property

The original intention behind the package was to discourage the use of NNPs to hold such high value residential property as a means of tax avoidance.

It was announced in the Budget that these measures would be extended – again in stages – to UK residential property held by NNPs with a value in excess of £500k:

• from 20 March 2014 SDLT at 15% is charged on acquisition of such property by NNPs

SDLT relief – property authorised investment funds

Freedom of information: access denied by ministerial veto

Tue, 04 Feb 2014 10:38:00 Z

Exercise of the executive override under section 53 is rare but its use has increased over the last two years. It has been used 6 times since 2009 in relation to cabinet discussions on the legal merits of going to war with Iraq, on devolution matters, on government plans to reform the NHS and, most recently, in relation to High Speed Two (HS2).

On 30 January 2014 transport secretary Patrick McCloughlin used this veto power to override the Information Commissioner's decision that it is in the public interest to disclose a report prepared by the Major Projects Authority about the plan to develop HS2.

Section 53 of the FOIA allows a decision by the Information Commissioner that the public interest balance weighs in favour of disclosure to be overridden. In justifying the use of this executive override power, the transport secretary took the view that the exceptional importance of the HS2 project; the extremely strong public interest in ensuring that the public expenditure for HS2 is properly and robustly overseen and controlled; the timeframe between the publication of the report and the request for information and the particular stage of policy development within the HS2 project meant that, in his view, the public interest balance weighed in favour of non-disclosure.

The ministerial veto is a powerful tool not to be used lightly. The very existence of the FOIA is intended to encourage greater openness, transparency and accountability to enable scrutiny over the delivery of public services and provide greater access to official information. It is a fine balance between determining where the public interest lies in whether to disclose or withhold information. However, it is even more of a sensitive balancing act in deciding whether to use the veto power to provide a 'safe-haven' for discussions upon which policies and funding may be based against a determination by the Information Commission that such information should be disclosed.

It will be interesting to see whether this veto power will continue to be exercised more frequently or whether government will take heed in the knowledge that to do so may undermine the underlying purpose of the FOIA, the authority of the Information Commissioner and public confidence in government decision making.

2014 – Another Year of Planning Reform

Mon, 03 Feb 2014 10:33:00 Z

Community Infrastructure Levy

Changes the CIL Regulations which were laid before the House of Commons in December 2013 have been superseded by revised a draft amendment to the CIL Regulations which will come into effect early this year. A snapshot of some of the changes include:

• allowing a further year (until April 2015) for local planning authorities to pool section 106 contributions;

• permitting differential rates to apply not only to uses and geographical areas but also to uses based on size of the proposed development, i.e. based on the number of dwellings or gross internal area;

• providing a new 'vacancy test' will allow CIL to be calculated based on floor space that has been in continuous use for 6 months over the last three years (instead of only 12 months);

• allowing CIL to be paid 'in kind' by way of the provision of infrastructure; and

• allowing CIL to be paid in phases for any planning permission (not just outline permissions);

• for non-phased planning permission identifying the date at which CIL liability is calculated to be the date when the permission was granted (as opposed to when pre-commencement conditions are discharged)

Rights of Light

The Law Commission is currently in the process of reviewing the response to its consultation on the rights to light which ended in May 2013. They are investigating whether the law provides a sufficient balance between the interests of landowners and the need to facilitate development. They are also considering the interrelationship of the planning system with the rights to light, and examining whether the judiciary remedies available are proportionate, reasonable and adequate.

Rights of light usually arise by long use rather than an express agreement between landowners. Such rights are rarely registered and, therefore, it is not uncommon for those burdened and benefiting from those rights to be ignorant of their existence. Since the planning system does not take into account a private right of light, the existence of such rights may interfere with the ability to develop land, even where planning permission has been granted

The anticipated publication date, if the Law Commission's project proceeds to a final report with a draft bill, is late 2014.

Judicial Review

In July 2013 the Government introduced changes to the Judicial Review process which included a reduction in the time limit for making certain types of claim from 3 months to 6 weeks. In November 2013 consultation closed on further amendments to the Judicial review process which, among other issues, would prevent those with an 'unmeritious' interest in such a claim from exploiting the Judicial Review process to frustrate, delay or gain a commercial advantage.

The Government is now reviewing the consultation responses received relating to:

• reform of who may make a judicial review claim;

• rebalancing the structure of financial incentives to reflect proportionate interests in costs of the case;

• appeals of important cases to be heard quicker by the Supreme Court;

• creation of specialist “planning chamber” for challenges on major developments;

• dealing with minor procedural defects that would have made no difference to the overall decision;

• local authorities’ abilities to challenge nationally significant infrastructure projects; and

• the ability to provide legal aid for certain statutory challenges under the Town and Country Planning Act 1990.

As this forms part of the Government's objective of stimulating economic recovery and reducing burdens it would not be surprising if some these reforms came into effect sooner rather than later.

Too close for comfort – LPAs fail on the duty to co-operate

Tue, 14 Jan 2014 10:26:00 Z

However, some local planning authorities are still fighting against the tide by attempting to go solo rather than in tandem with their neighbouring authorities while other local planning authorities are well and truly caught between a rock and a hard place.

Section 110 of the Localism Act sets out the new requirement of a 'duty to co-operate' which applies to all LPAs. The duty requires that where development or use of land would have a significant impact on at least two local planning areas, that those LPAs set out policies to address those issues and to 'engage constructively, actively and on an ongoing basis' to develop strategic policies. The NPPF sets out the strategic issues where co-operation with neighbouring authorities could be appropriate and states local plans should be 'based on co-operation with neighbouring authorities'. The NPPF addresses the duty of LPAs to co-operate on strategic priorities with the expectation of 'joint working on areas of common interest to be diligently undertaken for the mutual benefit of neighbouring authorities'.

The local plans for Mid-Sussex, Aylesbury Vale, West Dorset and Weymouth and Portland planning authorities have all failed the test. But what happens when there isn't any 'mutual benefit' based on administrative objectives? Take, for example, Luton Borough Council which was branded by Eric Pickles as using 'terror tactics' by trying to 'bully' neighbouring North Hertfordshire council into taking on some of their projected housing requirement. Luton says there is no land within its boundary and neighbouring authorities are unwilling to help. During a House of Commons debate last week Luton South MP Gavin Shuker said that Luton can only build up to 6,000 new homes within the borough but the population demand requires 30,000 new homes to be delivered. So where does this leave those in need of a home?

For a local development plan to be found sound it must satisfy the duty to co-operate, which is not a duty to agree. It is a duty for local development plans to be positively prepared and effective, to be based on effective joint working on cross-boundary strategic priorities and, according to the inspector's letter on the inadequacies of the Mid-Sussex District Plan 'where appropriate and sustainable, on a strategy which seeks to meet unmet requirements from neighbouring authorities'. Until communities and LPAs are willing to share the burden of releasing land to deliver new homes a large number of our ever increasing population will remain wanting. Perhaps the test should be more than just working 'pro-actively and diligently'. Perhaps neighbouring LPAs should be required to take on some of the burden in order to property satisfy the duty? 'Mutual benefit' must be benefit to the community at large rather than a reflection of administrative boundaries, regardless if this is what some might argue as being contrary to 'localism'.

Adjudication - "Pay first, argue (now up to twice as much) later"

Tue, 07 Jan 2014 10:17:00 Z

The case concerned whether or not an adjudicator's decision itself gives rise to a new cause of action and thereby starts a new limitation clock or whether limitation is purely linked to the underlying claims in contract and/or tort. In so determining, it was necessary to consider what terms were implied into a construction contract as regards adjudication and subsequent legal proceedings.

Adjudication was introduced to provide a quick and cost effective means of resolving construction disputes, with the aim of maintaining cash-flow during the course of projects. Although a party to a construction contract has the right to refer a dispute to adjudication at any time, by its very nature, a party seeking payment to protect against cash-flow issues will be unlikely to wait until near the expiry of a statutory limitation period before referring the dispute. Thus, limitation is not ordinarily a concern at the outset of adjudication but the limitation bar might descend to block referral of the underlying dispute to a court or arbitrator for final determination.

Aspect was engaged by Higgins to survey a site for asbestos in March 2004. In February 2005 Higgins found additional asbestos and claimed this had caused it 17 weeks delay. Higgins referred the dispute to adjudication in June 2009 claiming £822,000 in damages, the adjudicator awarding circa 80% of that sum. In February 2012, Aspect commenced litigation to seek "a final and binding resolution of a dispute which was referred to adjudication".

Aspect claimed that there must be an implied term that an unsuccessful party in adjudication is entitled to have the dispute determined by litigation and that a new limitation period began to accrue from the date of payment of the adjudicator's award; payment giving rise to a new cause of action.

Higgins argued the litigation was time barred in contract and in tort, with the contractual limitation period having expired in April 2010 (6 years after the date on which Aspect delivered the asbestos report to Higgins). The limitation period in tort had expired in June 2011 (6 years after the date on which Higgins could continue work on site following the delay caused by removal of additional asbestos containing materials).

Generally, the costs are reluctant to interfere with negotiated contracts and the law imposes strict constraints on the implication of terms. The most commonly cited test for implying terms into a contract was proposed by Lord Hoffman in Attorney General of Belize and others v Belize Telecom Ltd [2009] UKPC 10 (the 'Belize test'). This test requires:

• that the term to be implied must be necessary to make the contract work and to give business efficacy to the contract; and

• that if an officious bystander were to suggest that the term be included in the contract, that the parties would agree that it was so obvious that it goes without saying.

Higgins argued that the implied term was neither necessary nor obvious and did not accord with business common sense, fairness or wider policy considerations (as set out by Lord Hoffmann in the Belize test).

There were 4 preliminary issues that the parties asked the court to decide:

Firstly, was it an implied term that an unsuccessful party would be entitled to seek final determination by litigation and recover payments made in compliance with an adjudicator's decision; secondly, if so, what was the applicable limitation period; thirdly, what limitation period applied to any counterclaim the Defendant might have; and, finally, was there a claim in restitution for unjust enrichment.

At first instance, Mr Justice Akenhead found that there was no implied term that a paying party must be entitled to have the dispute finally determined by legal proceedings. The court noted that if such a term was implied, in theory, a claim could be brought more than 12 years after the original cause of action arose. The court noted Higgins' argument that adjudication could have the effect of potentially postponing final determination of a dispute which was contrary to the intent and policy of the Construction Act 1996. On the facts of the case, Aspect could have commenced proceedings immediately upon receipt of the adjudicator's decision, which was well within the underlying limitation period. Thus, the court found that it was not necessary to imply a contractual term enabling it to do so or to start a new limitation clock.

Aspect appealed the decision as to the existence of the implied term. The Court of Appeal handed down its decision on 29 November 2013, finding unanimously that the implied term did pass the threshold of the Belize test. In the absence of such an implied term, the court consider that a 'wily claimant' could wait until toward the end of the underlying limitation period before commencing an adjudication, thereby eliminating the possibility of the responding losing party commencing litigation to challenge the decision. This was not now Parliament intended adjudication to be used.

As to the relevant limitation period, the court highlighted that as a cause of action is an assertion of entitlement, the accrual of that cause of action is the date of payment or overpayment pursuant to an adjudicator's decision as that is the point from which the losing party can claim to be 'entitled' to have the payment or overpayment returned. Thus, a new limitation clock does start on date of payment for a losing party to commence proceedings.

As for the third issue, both the court of first instance and the Court of Appeal concurred that the limitation period applicable to the counterclaim accrued from the date of breach of contract or duty as the successful party always knows he has a claim and can issue proceedings at any time.

The court of first instance rejected the final issue and the restitutionary claim fell away.

In some standard form contracts, such as the NEC3, there is an express term governing the limitation period that shall apply following an adjudicator's decision. In the case of NEC3 the period for notifying a party that you do not accept an adjudicator's decision is restricted to 28 days. Where no such express term applies to a construction contract, in light of the decision in Aspect, a term enabling an unsuccessful party to bring litigation or arbitration proceedings for final determination of an adjudicator's decision will be implied and a new limitation clock will begin to accrue following the adjudicator's decision. It awaits to be seen if and when the Supreme Court will be asked to verify or reverse this position.

Want to Control the Future?

Tue, 10 Dec 2013 10:09:00 Z

Normally this is done by way of a restrictive covenant by which the buyer covenants not to so use the land – and if done properly (and correctly registered) this will automatically bind the buyer's successors in title, as well as the original buyer.

One essential for a restrictive covenant is that it benefits land held by the seller. However even where the seller has no remaining land in the area capable of really benefitting from the restriction it may want to restrict use of the land after the sale for legacy and reputational reasons and a restrictive covenant will not bite in these circumstances.

Sometimes the seller chooses to impose the user covenant in the hope that it will be a deterrent to the buyer. It might choose to back this up by putting a restriction on the buyer's title at the Land Registry which prevents any future buyer from registering itself as the owner of the land in question (unless the seller certifies that it has received a deed of covenant directly from the future buyer, covenanting to comply with the user restriction). In theory the seller would be able to sue on the covenant at any time, either under the original covenant or under the deed of covenant (as the case might be). However, a bullish owner might decide to ignore the covenant on the basis that the seller would be unable to show any real loss from the breach and would therefore be extremely unlikely to sue for damages.

The ways in which this might be better achieved all have their own disadvantages, including cost consequences, and both seller and buyer would need to take detailed advice when considering them:

(a) Clawback

The seller might try to enforce the user covenant through overage or clawback. Here the seller takes positive covenants from the buyer to pay the seller a sum of money if the buyer uses the land in the stipulated way in the future and this sum could be set so high that the buyer would be unlikely to do it.

The downsides of this scheme for the seller are that clawback provisions are complicated and can be subject to lengthy negotiation and this can increase the up-front legal costs. Furthermore the scheme is secured by a restriction on the buyer's title and deeds of covenant from each successor. There is therefore both an element of policing involved, and future time and legal costs in dealing with each deed of covenant in turn.

A seller is therefore unlikely to consider this unless it was intending to impose a clawback provision anyway – for example if it had been thinking of prohibiting the change of use for the first 5 years after the sale and then taking a clawback for any change of use after that period. In this scenario the clawback would be applied from day 1 – with a penal proportion of the profits going to the seller if the change took place in the first 5 years, and dropping to the intended (shared) level thereafter.

(b) Lease

One of the simplest ways to ensure that such a user covenant is enforceable is not to sell the freehold but instead to grant a long lease (999 years, equivalent to a freehold) to the buyer. In any lease a user covenant will remain enforceable between the landlord and tenant at all times (not just the original parties).

However this is unlikely to suit either party save in unusual circumstances: the seller usually wants to remove itself from the land completely and not to retain an interest in it, potentially for an extremely long period, and the buyer is likely to want the full freedom which comes with a freehold title. The long lease is also likely to lead to negotiation on areas such as the landlord's right to forfeit the lease versus the buyer's wish to control and raise finance on the property.

Another way to enforce such a user covenant is to couple it to an estate rentcharge. The way it works is that the seller reserves a nominal rent (the sum must be nominal only), imposes the user covenant and a right to re-enter the land if the buyer breaches the covenant. If the buyer (or its successors) breach the covenant the seller may forfeit the estate (i.e. take back the land without payment).

Of course the seller may have no interest in taking back the land (especially if it is contaminated) but this may be a useful threat. In addition the Court has a general equitable jurisdiction to grant relief – but this is normally only given if the buyer remedies the breach.

Downsides of this route are that estate rentcharges to protect a covenant are rarely seen and so this would require specific negotiation and the buyer (and its funders) might well be reluctant to agree.

As a result of the difficulties detailed above, together with the risk of deterring the buyer and the increased legal costs which would be incurred, the seller will often simply impose the user covenant and hope that, in practice, this deters the buyer. However, where it is essential that the seller retains this future control one of the methods spelt out above could be used to achieve this.

This blog was written by Chris King.

A Damp Squibb

Mon, 25 Nov 2013 09:58:00 Z

In December 2011, London Pleasure Gardens Limited ("LPG") was granted a lease to develop the Pontoon Dock Site in Silvertown with a view to hosting revenue-generating events before, during and after the London Olympics. The London Borough of Newham ("Newham") funded LPG through a £3mn loan.

LPG contracted with Squibb Group Ltd ("Squibb") to carry out ground works at the site under an amended JCT Construction Management Trade Contract 2011 (the "Contract"). Newham was involved in negotiating the Contract and proposed step-in rights that were included for its benefit.

Whilst Squibb completed the work properly and on time it was left out of pocket as LPG went into administration shortly after the Olympics commenced owing Squibb £174,000. Squibb went to court, arguing that it had a collateral contract with Newham whereby Newham had guaranteed LPG's payments to Squibb under the Contract. It argued that the collateral contract had arisen either via Newham's involvement in the Contract negotiations or by representations made in meetings following LPG's failure to pay, at which Newham agreed to pay Squibb £250,000 of the then outstanding sum of £424,000.

At trial, Stuart-Smith J found that the Newham's negotiation of the Contract as funder did not result in the creation of a collateral contract between Newham and Squibb. Although Newham was named in the Contract, it was not subject to any express provisions requiring it to guarantee payment to Squibb. Newham's ability to propose terms was not sufficient to create a collateral contract, as Squibb had the right to reject these at any time.

Squibb's alternative argument, that a collateral contract arose during meetings between the parties, also failed. After listening to evidence from witnesses who had attended the meetings, the court held that although Newham had agreed to pay £250,000 of the £424,000 owed, it had not agreed to guarantee all sums owing under the Contract. In fact, since Newham had paid the £250,000, it owed nothing further to Squibb.

The morals of the case are clear: when relying on a funder to guarantee an employer's breach, a contractor must ensure that this is expressly set out in the in contract. Where subsequently seeking such a guarantee, make certain that any discussions are clearly recorded and make efforts to formalise the parties' intentions as soon as possible. Finally, do not assume that the involvement of a funder is a sure sign that the project will succeed!

Squibb Group Ltd v (1) London Pleasure Gardens (2) London Borough of Newham [2013] EWHC 3275 (TCC)

It shouldn't be a hard sell. Getting your head around the known knowns and the known unknowns

Wed, 06 Nov 2013 09:55:00 Z

You are the proud owner of a riverside warehouse, just begging to be turned into some high end apartments, with a spot of retail on the ground floor. Or perhaps you are a developer, working with local landowners to promote their rolling green fields for much needed housing.

After months (or years) of hard work, planning permission has been obtained. A buyer is waiting in the wings. Heads of terms are almost agreed. Optimistic timescales are being batted glibly back and forth. Exchange of contracts is surely just around the corner.

Then – suddenly - a spanner in the works. The local authority is taking weeks to turn round searches. There is a restrictive covenant on the property which the buyer claims to have known nothing about. The buyer wants to rely on your environmental survey and, when this cannot be arranged, wants an allowance against the purchase price to deal with any contamination which may come to light or for you to take the liability. Before you can say "price chip", the transaction is dragging, costs are spiralling and the buyer is looking over its shoulder at the site down the road.

What can be done to minimise these apparent unknowns? The reality is that a lot of the things which crop up unexpectedly halfway through a transaction and cause chaos are actually known knowns, or at least known unknowns. In this blog, we have tried to put together a list of the dull but important things which can be done in advance, before the sale process kicks off, to enable your lawyer to sell your property as quickly and efficiently as possible. Inevitably this front-loads costs to some extent, but if it minimises delays and re-negotiations, this could be time and money very well spent.

• Heads of Terms: should be as detailed as possible and clearly spell out any unusual features of the site (e.g. restrictive covenants, agreements with third parties which will bind the purchaser). The clearer and more detailed the Heads, the less scope there is for the buyer to re-negotiate later. Clear timescales, which the seller is confident it can stick to, will allow the seller to change horses legitimately if a buyer doesn’t perform.

• Exclusivity agreement: if a buyer is likely to want a period of exclusivity, get a draft exclusivity agreement lined up ready to send them, rather than spending two weeks of the timetable arguing about who will draft it and what form it will take. Don’t let this document de-rail the timetable for the project as a whole.

• Planning: as well as collating all the relevant planning documents (planning permission, s106 agreement etc.) ready to send the buyer as part of the sale pack, make sure that you also have:

o Letters of reliance/warranties from any consultant whose work the purchaser will need to rely on, such as architects, structural engineers or environmental consultants. These should be agreed with the consultants in advance and supplied as part of the sales pack if possible.

o Copyright licences from the architects and any other designers enabling the buyer to use their plans. Without these, the buyer will be unable to construct what has been designed.

• Land ownership: a clear plan should be provided, showing the buyer exactly what it is buying. If ownership is complicated (for example where a developer is promoting land on behalf of a number of landowners) a composite plan should be prepared, showing who owns what. Any gaps, ransom strips, agreed land swaps etc. should be disclosed upfront.

• Conveyancing plans: Land Registry compliant plans will be needed showing the extent of the land being sold and any rights/restrictions affecting a particular area of land (for example land which is currently let, rights of way etc.).

• Title pack: this should go out as soon as Heads of Terms are agreed, in order to start time running. To achieve this, the bulk of it needs to be prepared in advance, with just a few updates needed once terms are agreed. The pack should contain:

o Up-to-date official copies of all the titles making up the property and copies of all the documents referred to on those titles. If key documents are missing, consider getting insurance to cover this in advance, rather than waiting for the buyer to raise this.

o Replies to standard enquiries. No one likes preparing these and they take a huge amount of time. However painful the process, getting them ready in advance, so that they can just be checked and updated once terms are agreed, will save time in the long run. The enquiries about capital allowances, in particular, often take time to answer and require specialist input from the seller's financial advisers. A set of CPESs peppered with "to follow" gives a buyer ample excuse to drag its feet, or even to insist that time has not started to run.

o Searches: if the timescale is tight, the seller should consider investing in a full searches pack to issue to each prospective purchaser. This will remove any opportunity for the buyer to plead "awaiting searches" as a reason not to exchange. The cost of a full search pack is usually between £2000 and £3000 and will need to be updated every three months, but it can be worth it in pushing through an aggressive timeline. Where the searches reveal issues, the seller should seek to head these off in advance, so that a solution can be presented to the buyer at the same time as the search results. For example, if there is potential chancel repair liability, the seller could get the relevant insurance and include this in the title pack, rather than having the debate with the buyer about whether this is necessary and who will pay.

• Title issues: where there are known issues on the title which need to be dealt with before a buyer could reasonably be expected to proceed (for example restrictive covenants prohibiting development) the seller can avoid future delays by giving some thought in advance to how the buyer will get comfortable with these. If there is an issue of interpretation, it may be worth getting counsel's opinion. Insurance options should also be investigated. Where third party consents are required, for example to satisfy a restriction on the title, the form of these should be agreed in advance and, if possible, in principle consent obtained.

Pledging to use Alternative Dispute Resolution ("ADR")

Wed, 30 Oct 2013 09:50:00 Z

The UK's Centre for Effective Dispute Resolution (CEDR) has joined forces with CPR to promote the Pledge in the UK. The Pledge updates the CPR Corporate Policy Statement on Alternatives to Litigation, launched in 1984 and already has numerous global companies such as Microsoft, BP and Shell among its signatories.

Unlike the 1984 policy statement, which companies would subscribe to on the basis of individual cases, the new Pledge has a broader and more systemic approach. Signatories pledge:

"Our company pledges to commit its resources to manage and resolve disputes through negotiation, mediation and other ADR processes when appropriate, with a view to establishing and practicing global, sustainable dispute management and resolution processes."

The Pledge is an open commitment to attempt to use ADR when a dispute arises. So is it really necessary when most commercial contracts already provide for some form of ADR in the event of a dispute?

Case law has shown the court's willingness to penalise parties on costs if they have failed to attempt alternative means of settling the dispute. Even ignoring an offer to mediate has been held to constitute an unreasonable rejection of ADR [PGF II SA v OMFS Company, 2012]. In Cable and Wireless PLC v IBM United Kingdom [2002] the court was prepared to enforce a contractual term that did not specify a type of ADR and stated that the parties should attempt in good faith to resolve the dispute or claim through ADR as recommended by CEDR. Halsey v Milton Keynes General NHS Trust [2004] made clear there are only a handful of cases that the courts consider unsuitable for ADR (such as one where a party is seeking a precedent) and ADR should be attempted in the majority of cases.

A party refusing to engage in ADR would need to be extremely confident in its case and in any event should provide reasons for its refusal. However in ADS Aerospace Ltd v EMS Global Tracking Ltd [2012] the judge held that a successful defendant was entitled to refuse to attend a mediation which was suggested close to trial, after the defendant had already made several other attempts to negotiate and where it believed that the claimant would only accept close to the full amount claimed.

Cynics may question what weight the courts will give to the Pledge if signed by one or both of the parties to litigation. The government published its 'Dispute Resolution Commitment' in 2011, following on a pledge made in 2001 which aimed for government bodies to use ADR wherever possible. In Royal Bank of Canada Trust Corporation v Secretary of State for Defence [2003] despite being successful, the MOD were not awarded their costs as they had refused mediation in contravention of the pledge. It follows that the courts would be likely to adopt a similar approach to a signatory to the Pledge who failed to properly engage in ADR.

Most parties to litigation will find themselves obliged to take part in some form of ADR be it under the contract or as a prerequisite to litigation (for example under the Pre Action Protocol for Construction and Engineering Disputes the parties are obliged to have a pre-action meeting before proceedings are issued). It is therefore likely that most commercial entitles will already find that they are required to adopt an approach to disputes which reflects the objectives of the Pledge. CPR state that the Pledge "serves as a “neutral” basis for beginning negotiations with the other party without any implications of weakness or fault" and it should be noted that the Pledge does not preclude parties from ultimately entering into litigation if necessary. When it comes to attempting to resolve a dispute, a public declaration of willingness to avoid litigation such as the Pledge may serve to focus the parties' minds particularly if that declaration is reinforced within organisations by education focused on achieving a common cultural approach to the use of ADR.

For more information about the Pledge please click here

Is sunlight a nuisance?

Tue, 08 Oct 2013 09:30:00 +0100

Artificial light emitted from a building which is prejudicial to health or causes physical damage to neighbouring properties is a statutory nuisance under section 79 of the Environmental Protection Act 1990 and the local authority may take action to ensure that the nuisance is stopped. There is, however, no reported case in England and Wales in which a court has been required to determine whether the reflection of natural sunlight can amount to an actionable tort of nuisance; which is not surprising really, considering how little sunlight this jurisdiction enjoys!

However, there is a New Zealand case, Bank of New Zealand v Greenwood [1984] 1 NZLR 525, where the High Court of New Zealand held that reflected light can constitute an actionable nuisance. In this case, glass roofing panels on a slope of approximately 60˚ forming the veranda of a building in Christchurch reflected a high intensity dazzling glare across the road and into the windows of the two buildings opposite causing considerable discomfort and inconvenience to the occupants. The neighbours brought an action in nuisance seeking an injunction to prevent the reflection of sunlight into their south-facing windows The Court held that the glare was a substantial and unacceptable interference with the enjoyment of other buildings, though one which could be remedied simply by the provision of blinds. The Court rejected the argument that the problem was one due to 'natural causes' and held that it was due to the deflection of sunlight from its natural course by an artificial structure, like the diversion of surface water. In coming to this conclusion, the Court considered a number of different factors including the number of hours in a given period over which the glare was experienced in any one of the plaintiff's offices, the intensity of the glare, the direction from which it came, the fact that there was no escape from it and the fact that the plaintiffs could not simply close down when the problem arose. Interestingly enough, the Court considered the 'intermittent nature of the problem, not only its' arrival and departure as the direction of the reflection changes, but also as the sun is obscured by cloud and then clears' as increasing rather than diminishing the inconvenience. The Court found that a firm of solicitors affected by the reflection, whose offices already had fitted venetian blinds, could simply close them while the glare persisted. The Court, however, felt the situation was different for those plaintiffs whose offices did not already have blinds or curtains fitted; especially those buildings which did not have blinds or curtains to the south. The Court said it is one thing to take measures to keep out sunlight to the north, quite another to the south. The opposite consideration is probably true here in the northern hemisphere. The building owner argued that they were doing no more than making ordinary and reasonable use of their building and that it was a normal building except for the slope of the glass, which itself would have caused no difficulty had it faced in another direction or not faced another building. The Court rejected this argument and said it is not normal or a reasonable consequence of the construction of a veranda for a dazzling glare to be reflected into premises opposite, and so create a nuisance there.

The plaintiffs did not seek damages but the Court held that they were entitled to have the nuisance stopped. The Court held that to require the defendant to take steps to eliminate the glare altogether would be to give the plaintiffs more extensive relief than they were entitled to have and concluded that the provision of vertical venetian blinds at the defendants' expense would satisfy the plaintiff's rights and discharge the defendants' obligations. In English law, the mere presence of a building or the fact that it gets in the way and so prevents something from reaching neighbouring land is generally not enough to bring an action in nuisance. Buildings that have spoiled their neighbour's view or restricted or altered the flow of air on to their neighbour's land or interfered with television reception are not actionable in nuisance, even though they seriously detract from the enjoyment of the neighbouring land. In general, something has to emanate from the building before the nuisance becomes actionable, such as noise, dirt, fumes, a noxious smell, vibrations and suchlike.

In Hunter v Canary Wharf Ltd [1997] 2 W.L.R. 684 the House of Lords held that the fact that Canary Wharf Tower interfered with neighbouring residents' television reception simply as a result of its presence did not constitute an actionable nuisance. The Lords did, however, consider the New Zealand case and they distinguished it from one concerned with the mere presence of a building on the grounds that the glass roof of the veranda did not merely reflect sunlight, it deflected it 'at such an angle and in such a manner as to cause the dazzling glare, too bright for the human eye to bear, to shine straight into the neighbouring building". The Lords considered the facts in the New Zealand case as 'most unusual' but they regarded the decision as 'eminently sensible' and 'admirable' although 'at the very limit of the law of nuisance'. Although every case depends on its own particular facts, especially in the field of nuisance, a building which creates a 'dazzling glare' that is intense enough to melt a Jaguar could possibly be enough to create a nuisance in English law. Given the number of oddly shaped reflective glass buildings in London and the current climate models it is only a matter of time before our courts have to consider whether reflected sunlight constitutes a nuisance although only a lawyer could suggest such a thing!

Procurement Policy Note on EU Directives

Fri, 23 Aug 2013 09:14:00 +0100

Implications:

• The new Directives, which are expected to be implemented by the end of 2015, make changes to the procurement regime which will affect the way that bid teams approach public sector, utilities and service concessions tenders.

• Overall, the changes are designed to make the procurement process quicker and more straightforward, with more freedom on both sides to negotiate.

• Key differences include: a reduction in time limits for simpler procurement procedures by as much as a third; greater use of self-certification; mandatory e-procurement and a new ‘innovative partnership’ procedure.

• From a legal perspective, there is now clarity that buyers can take into account the relevant skills and experience of individuals at the award stage rather than at selection, and an express validation of electronic marketplaces for public procurement.

The PPN explains that the Directives are expected to be finalised in the autumn of this year, with a new procurement regime to be in place in less than two years. The new regime will only apply to procurements commenced after the Directives are implemented. The PPN notes that there is limited scope for amendments to the current text, as it is mostly prescribed by the EU. Annex A of the PPN sets out the main changes. A link to the full text can be found here.

The new regime is expected to simplify current procurement practice, which may mean tighter timescales but less red tape for bid teams going forward. For example, there will be a greater use of self-declarations, with only the winning bidder having to submit documents to prove its status. Buyers will be permitted to take into account relevant skills and experience at the award stage.

In addition, the new regime includes a reduction in time limits for more straightforward procurement procedures by as much as a third and an e-procurement system which is expected to be made mandatory by 2020. The new rules also include the removal of any distinction between Part A and Part B Services and a new ‘light-touch regime’ with a higher threshold (£750,000) for social and health services.

Positively, bidders are being given more freedom to negotiate for contracts which are not ‘off the shelf’, although poor performance under previous contracts is expressly permitted as a ground for exclusion from the process altogether.

There is a focus on SME involvement, with a new turnover cap (buyers are unable to set company turnover requirements at more than twice the contract value) and encouragement being given to buyers to break contracts into lots where appropriate. At the other end of the scale, concessions contracts (works and services) in excess of EUR 5mn will be advertised in OJEU and procured in compliance with a new regime for concessions.

Finally, a new procedure has been introduced, dubbed the “Innovative Partnership” procedure. This is intended to encourage innovation and allows a supplier to bid to enter into a partnership with an authority to develop a new product or service.

HELP TO BUY: BOOM OR BUST?

Thu, 22 Aug 2013 09:11:00 +0100

Aimed at overcoming the deposit barrier, this mortgage guarantee scheme is currently only available for new-build properties. The Government will lend buyers with a 5% deposit up to 20% of the value of their home priced below £600,000 for five years. From January 2014, the scheme will be extended to buyers of all properties, giving purchasers with a 5% deposit the ability to buy on the understanding that the Government will guarantee a further 15% of the home loan as an insurance policy for banks.

The residential housing market is currently experiencing a resurgence of activity, giving a much needed boost to the construction industry. Major house builders including Crest Nicholson, Bellway, Barratt, Cala, Persimmon Homes and Berkeley have all posted an increase in activity since the Help to Buy scheme launched in April. The Council of Mortgage Lenders has announced that the number of mortgages being advanced to buyers in the second quarter reached 68,200, representing the largest quarterly total for five and half years. For first time buyers, things are finally looking up - more than 25,000 loans were advanced in June alone. This represents an increase of 30% when compared to a year ago and the boost is widely accepted to be due to the Help to Buy Scheme.

However, the outlook is not entirely rose-tinted and there are growing fears that Help to Buy risks fuelling a new housing bubble, further widening the gap between house prices and wages. Jones Lang LaSalle's mid-year residential market update predicted a 3% increase in prices this year and 3.5% next year (it had previously anticipated rises of only 1% and 2.5% respectively) a rise which is likely to be the result of the Government scheme. There is growing concern that the scheme is leading to artificial house price inflation which risks pushing house prices further out of reach of future first time buyers. It could also lead some to overstretch themselves financially (particularly if mortgage rates rise) to get on the ladder now before the prices increase beyond their reach. The Council of Mortgage Lenders reported that first-time buyers are already having to borrow more because of the recent surge in prices (the average loan size rose from £112,500 in May to £117,00 in June of this year).

As a result, calls are growing for the Government to scale back or terminate the scheme early as it is viewed as being excessive in the context of a more upbeat market. Perhaps a middle road would be to insert a 'bubble release' mechanism into the scheme in the event that house prices start to rise at too fast a rate. We await the Government's reaction to calls to scale back the scheme.

SDLT group relief anti-avoidance – good news from HMRC

Wed, 14 Aug 2013 09:03:00 +0100

Following a meeting earlier this summer between HMRC, the British Property Federation, the Law Society and others, HMRC have confirmed that they will not deny SDLT group relief where:

1. A business acquires a PropCo

2. The property is then transferred to another group company (Group Transfer)

3. The purchaser then liquidates PropCo

As a caveat, HMRC stress that any additional steps may result in denial of group relief. As ever, it is therefore important to give early thought to SDLT in planning this type of acquisition.

The trigger for the meeting had been HMRC's invoking of a targeted anti-avoidance rule (TAAR) within the SDLT group relief rules to deny group relief in a number of cases. The TAAR denies group relief on a transaction not carried out for bona fide commercial reasons, or as part of arrangements a main purpose of which is to avoid tax.

HMRC's view had been that a Group Transfer in the circumstances set out above was part of arrangements with a tax avoidance main purpose, as although the business first buys PropCo, the real aim of the business was to acquire the property. Buying the property directly from the PropCo, before it became part of the purchaser's group, would not have been eligible for SDLT group relief.

The meeting notes interestingly draw on draft guidance published alongside the new GAAR (see my blog here) which confirms that HMRC regard a decision to purchase shares rather than land, and therefore pay less tax, as a "straightforward legislative choice".

Along with the welcome clarification on the specific approach to SDLT group relief, it is also good to see taxpayer-friendly HMRC guidance on the GAAR filtering down to other, more targeted, anti-avoidance provisions. Long may that continue!

SDLT avoidance - HMRC victorious regardless of taxpayer 'motive'

Fri, 26 Jul 2013 08:48:00 +0100

The decision is of particular interest as it comes in the same month that the new UK general anti-abuse rule (GAAR), designed to attack the most "abusive" of tax avoidance arrangements, takes effect. See my blog here for a fuller discussion of the GAAR.

The new GAAR can apply to abusive arrangements designed to avoid SDLT (amongst other taxes). Under the GAAR, not only is a tax "main purpose" required, but the new rule is narrowly focused with a number of important inbuilt taxpayer 'safeguards'.

In light of HMRC's recent victory it will be interesting to see whether HMRC in future uses section 75A, or the new GAAR, to attack SDLT avoidance schemes.

Background

In 2007 an SPV (Project Blue Limited, or PBL) agreed to buy the Chelsea Barracks (Property) from the MoD (at a price of £959m). It was agreed that 20% would be paid on exchange with the balance in equal instalments over 4 years.

To fund the remainder of the purchase price, PBL used a sharia-compliant finance arrangement. This was arranged between exchange and completion. The steps involved are briefly summarised below.

PBL acquired the freehold of the Property from the MoD in January 2008. PBL, pursuant to an agreement negotiated prior to completion of the purchase of the Property, immediately transferred the freehold to a Qatari financial institution specialising in sharia-compliant finance (Bank). The Bank then immediately granted a lease of the Property back to PBL.

The SDLT issue

PBL and the Bank filed SDLT returns in respect of the land transactions. PBL claimed that no SDLT charge arose, relying on the following arguments:

SDLT 'sub-sale', or 'transfer of rights', relief applied as PBL was not the 'ultimate' purchaser of the Property
SDLT 'alternative property finance' relief applied in respect of the sharia-compliant financing
The targeted SDLT anti-avoidance rule (section 75A) was not triggered as all steps were commercial transactions carried out for genuine commercial purposes

HMRC disagreed. It argued that section 75A did apply. As a result, SDLT of £50m was due from PBL as the total amount payable under the steps was in fact £1.25bn (taking into account both the purchase price and the Bank's return for providing the financing). This, of course, exceeded the £38m SDLT that would have been due had PBL simply purchased the Property for £959m.

The Decision

A number of issues were considered including, interestingly, whether application of the SDLT anti-avoidance rule to impose a higher SDLT charge in circumstances where sharia-compliant financing was used (as compared to more 'conventional' financing) could amount to a breach of Article 14 of the European Convention on Human Rights (discrimination on religious grounds).

I want to concentrate however on the interpretation of section 75A.

The Tribunal agreed with HMRC that the SDLT anti-avoidance rule had been triggered. As a result:

a 'notional' land transaction was deemed to have taken place between the MoD and PBL. Any other actual land transactions were ignored for SDLT purposes
the consideration subject to SDLT was actually £1.25bn

This decision was reached even though the Tribunal accepted that section 75A is quite clearly an anti-avoidance rule, and yet recognised that the rule does not include a provision that the taxpayer needs to have a tax avoidance motive.

The Tribunal held that the absence of a motive 'defence' in section 75A, whereby a taxpayer could point to genuine commercial, rather than tax avoidance, motives, is deliberate:

"the omission of a motive defence was hardly accidental. Parliament obviously intended that the provision should apply regardless of motive"

The significance of this is that we now have judicial authority that section 75A can apply even where the steps taken by a taxpayer are taken for commercial reasons.

What this means: section 75A vs GAAR

It may well be the case that PBL appeals this decision.

In the meantime a few points are worth highlighting:

whilst the burden of proof under the GAAR rests upon HMRC, under section 75A the Tribunal's view was that it is for the taxpayer to prove it did not have a tax avoidance motive (even though it decided that section 75A does not include a motive test). The Tribunal was clearly rather unimpressed by the failure of PBL's directors to give direct evidence as to its motive
the Tribunal noted the existence of a legally privileged "tax structure paper", prepared by PBL's advisors. It can be inferred from the decision that HMRC regarded the taking of tax advice as evidence of a tax avoidance motive (although, again, this was held not to be necessary under section 75A). This can be contrasted with the welcome position under the new GAAR, which explicitly recognises that merely obtaining tax advice is not of itself an indication that obtaining a tax advantage was a main purpose
whilst the stated aim of the new GAAR is to counteract only the most "abusive" tax arrangements (and a number of taxpayer 'safeguards' have been included to achieve this narrow focus), section 75A is a 'broad-spectrum" anti-avoidance rule. In the words of the Tribunal, it is a "blunderbuss rather than a sniper's rifle"
the GAAR guidance states that some arrangements may be "so blatantly abusive" that HMRC will seek to apply the GAAR without first considering the more targeted, existing anti-avoidance legislation (such as section 75A)
however as the Tribunal has now ruled that section 75A can apply even where a taxpayer has no tax avoidance purpose, one wonders how often HMRC will feel the need to resort to the GAAR to attack SDLT schemes?

Further clarification resulting from an appeal of the decision would be welcome.

_[1]Project Blue Ltd v HMRC [2013] UKFTT 378 (TC)

Insurers as lenders: what borrowers need to know

Fri, 12 Jul 2013 08:43:00 +0100

In its 'Money into Property UK 2013' report, DTZ confirmed that "aggregate non-bank lending grew by 35% in 2012, building on 17% growth in 2011". De Montfort University's May 2013 lending report found that such lending amounted to 15% of all new lending in 2013 and, in June 2013, Savills' head of valuation, William Newsom, identified that nearly a quarter of the 47 organisations currently claiming to be able and willing to lend and hold £100m or more of senior debt are insurance groups.

Insurers are now clearly a significant provider of UK real estate debt (De Montfort's figures represent £3.8bn of new lending by insurance groups in 2012) and all the indicators point to their market share increasing further and further in the years to come.

In their efforts to lend new money, traditional debt providers continue to be hamstrung both by the increasing regulatory burden and by the continued caution of credit committees with the damage of huge writedowns still fresh in their minds. Borrowers will increasingly find that they need to turn to insurers for debt finance.

By their nature, insurance groups are very different organisations to banks and borrowers will need to be prepared for quite different conditions of borrowing.

What borrowers need to know

The main differences with the insurers compared to the banks arise as a result of the fact that the monies provided by the lending entity within the insurance group will come from its parent's annuity business i.e. from insurance premiums and pension contributions. These premiums and contributions have to be invested and mortgage investments must show a premium over bonds.

Whereas the banks would routinely lend over a 3 or 5 year term, the insurers will lend over 10, 15 or 20 years.

The banks would also typically lend at a margin over LIBOR and not necessarily require hedging to be put in place. The insurers, on the other hand, require fixed margins over gilts.

Insurers will also typically require a large proportion (as much as 50%) of the loan to amortise in quarterly instalments.

Whilst the paying down of a large chunk of the loan is desired, insurers are also focused on certainty around the term of the loan in order to have certainty as to the return on the investment for the benefit of the underlying insurance or pension business that is funding the loans. A bank may well incorporate a prepayment fee into its conditions but such fees will not be a bank's particular focus and they will usually be fairly nominal (a typical 5 year loan would have a fee of 2% of the amount prepaid in the first 12 months, 1% in the 2nd year, 0.5% in the 3rd year and no fee in the final 2 years). By contrast, early repayment (in addition to the agreed/required amortisation profile) of a loan provided by an insurer is likely to have to be in a minimum amount of 5% of the facility, the borrower is likely to have to give the lender 3 months' notice of its intention to prepay and the prepayment must be accompanied by a fee in an amount (to quote one example):

"sufficient fully to indemnify the Lender against any reduction in the rate of return that the Lender determines it shall receive on its investment in the Loan as a direct or indirect result of the Early Repayment. The amount of the indemnity will be ascertained in accordance with the Lender's usual method of calculation provided that the calculation will be on the assumption, whether or not the fact, that reinvestment of such sums is only available in gilts;".

If borrowers can adjust their minds to appreciating the particular nuances of a business quite different from that of banks then they will be able to tap into a key new source of debt finance.

When the levee breaks

Thu, 20 Jun 2013 08:32:00 +0100

Simon Chandler and Sue Highmore examine the way ahead as the ABI-government agreement on UK flood risk approaches expiration and a private insurance market returns.

Property owners, investors and lenders in the UK need to focus on a rapidly approaching threat to their security.

At the end of July 2013, the UK flood insurance market is set to return to being fully risk-based for most properties.

Insurers will be free to review their rates and excesses, impose conditions on cover, or refuse cover altogether, and no flood insurance may mean no mortgage for some. Either outcome is very likely to affect adversely the value of flood-prone properties, of which there are many more than people realise.

In 2009, the Environment Agency (EA) identified one in six properties as being affected by flood risk. This was twice as many as before, because surface water flooding (which tends to cause more than half the flooding in the UK) was factored in for the first time.

Prudent lenders should be thinking ahead so as to manage any adverse impact on the value of their security, particularly as the new regulator is focused on improving capital adequacy. Institutional investors and developers need to factor flood risk into their stock selection, as they will not be immune from the pending insurance changes.

Free market

The protracted discussions between the government and the Association of British Insurers (ABI) to craft a scheme offering accessible and affordable flood insurance for homeowners (and their lenders) may yet produce a solution. However, that scheme is unlikely to cover commercial property or new builds, and so will leave a significant proportion of properties in a totally free market.

The desire for a free market is unsurprising. Losses caused by flood and storm damage in recent years have been significant at over £3bn in 2007 and £1.19bn for 2012, which was the second-wettest year on record. Urbanisation, inadequate and poorly maintained drainage systems, and past lax planning policy that allowed building in risk-prone areas – all these exacerbate flooding. With more extreme weather events and reduced public expenditure on flood defences, insurers’ appetite for the highest risk properties is naturally constrained.

The long-term impacts of climate change will require similar adjustment to the business model for flood insurance in many countries. The exceptions will be where the state bears the cost of flood damage, which is not something that the UK government will embrace. Its view is that property owners must be well informed and take steps to protect themselves.

On the agenda

Flood risk was not high on the agenda until recently, partly because identifying the true flood risk profile of an individual property was difficult; but now there is increasingly robust data. The main reason no one worried was because of a long-standing deal between the government and the ABI (the Statement of Principles), which offered homeowners and small businesses access to flood insurance at relatively stable rates, even if their property was at risk. This expires in July and will not be renewed.

So, what should the prudent lender/investor do? The first step is to make a simple screening of the property’s flood risk profile. Basic desktop searches, which examine data from the EA and commercial data on surface water and other risks, are relatively cheap in comparison to the potential loss from flooding (£30 upwards for homes and £75 upwards for commercial properties). Quality searches include expert analysis of the overall risk.

For new loans, lenders should commission a specialist flood risk search as part of their due diligence (which is usually done at the borrower’s expense). For existing portfolios, depending on their size, lenders should consider checking the flood risk of all or a sample of the properties, to test the effect on overall portfolio value.

If a search reveals potential problems, it may be possible to renegotiate the price or loan-to-value ratio, spend money on protecting the property from flooding, or to use specialist brokers to access flood insurance. The one thing to avoid is doing nothing, because this issue is not going away.

This blog was written by Simon Chandler and Co-authored by Sue Highmore at Practical Law Company.

Growth and Infrastructure Act 2013

Wed, 05 Jun 2013 08:23:00 +0100

It follows the Localism Act 2011 and the National Planning Policy Framework (2012) as a further step in the Coalition Government's reform of the planning regime.

The Act's measures are wide ranging and include (but are not limited to):

• the option to make a planning application directly to the Secretary of State if the local planning authority is "designated" as underperforming;

• restrictions on the power to require information to support planning applications; and

• the ability to make a stopping up order application concurrently with a planning application.

Further provisions relating to affordable housing, nationally significant infrastructure projects and the registration of town and village greens are considered in more detail below:

Affordable Housing

New provisions to be inserted into the Town and Country Planning Act 1990 (sections 106BA, 106BB and 106BC) and to last only until 20 April 2016 will enable applicants to apply to modify, replace, remove or discharge section 106 affordable housing obligations if the affordable housing requirement means that the development is not economically viable.

The provisions also allow applicants to appeal to the Secretary of State if the authority does not modify the obligation or fails to determine the application within the specified period of time (which is currently 28 days from the date the application is made).

In reaching its decision, the local planning authority must have regard to guidance issued by the Secretary of State. The Department for Communities and Local Government recently published this guidance (click here to view) which sets out the test for viability and the form of viability evidence required. If the evidence illustrates that the requirement to provide affordable housing makes the scheme unviable in the current market conditions then a viable alternative provision should be proposed.

Nationally Significant Infrastructure Projects

The Act will insert a new section (section 237A) into the Planning Act 2008 which has retrospective effect from 1 March 2010 and will mean that a Development Consent Order (DCO) is not required for a variation of or a replacement to a permission granted (and where the application for the permission was made) before 1 March 2010.

So where permission was granted or applied for before 1 March 2010, holders of permissions for a Nationally Significant Infrastructure Project (NSIP) will be able to make an application under section 73 of the Town and Country Planning Act 1990 to modify that permission without having to worry about whether or not an application for a DCO should be made.

The Act also revises the Special Parliamentary Procedure (SPP) in the Planning Act 2008 by removing the ability of statutory undertakers and local authorities to require a SPP by maintaining an objection to the compulsory acquisition of land required for an NSIP.

Town & Village Greens

There have been a few changes to the procedures for Town and Village Greens (TVGs) brought about by the Act. These have been largely in response to a consultation exercise. This same exercise proposed a character test for proposed TVG land to ensure that some land (ie golf courses, beaches, etc.) which did not meet the tests would not be registered as TVGs.

Land can be registered as a TVG if it has been used for recreational purposes for the preceding 20 years. Once registered, it can be used by local people for recreational purposes and this public use must not be interfered with by a landowner.

The new provisions under the Act will prevent TVG applications from being lodged where an application for planning permission has been made or granted, or when land has been allocated for development by the local authority as part of a Local or Neighbourhood Plan. This includes situations where the draft of a relevant Plan has been published.

At some future date there will also be changes to ensure that landowners who wish to allow some public use of their land will be able to do so without risking its future development potential. They will be able to deposit a statutory "landowner's statement" detailing their future intentions with the Commons Registration Authority. This is a change to the previous practice in which landowners had to challenge or take steps to prevent public use in order to be able to prevent local residents claiming 20 years' recreational use "as of right".

Outsourcing Health & Safety – a step too far?

Wed, 22 May 2013 08:09:00 +0100

Outsourcing involves the engagement of a service provider to manage and perform services or functions which would normally be performed by the customer in-house. Customers traditionally retain their core functions and look to outsource support services such as IT, cleaning, security and maintenance. Whereas it is relatively straightforward to set out contract terms transferring responsibility for the outsourced service to the service provider, it is much less easy where the customer and service provider both have statutory duties.

Complex legal issues can arise where customers seek to outsource all or part of their health and safety functions. The customer cannot assume that a one-sided contract, with no duty to co-operate or to provide information, which seeks to transfer all health & safety risk to the service provider, through widely worded obligations and indemnities, will allow the customer to escape from its duties under health and safety law.

The customer has a statutory duty to "conduct his undertaking in such a way as to ensure, so far as is reasonably practicable, that persons not in his employment who may be affected thereby are not thereby exposed to risks to their health or safety". Note the key word "undertaking" which was held in R v Associated Octel Co Limited [1995] to include all operations of the customer, regardless of who performed such obligations.

Despite any contract terms to the contrary, inevitably there will be some steps that only the customer can take to manage the risks. The Octel case and other case law, make it clear that the customer's duties under health & safety law do not end when the contract is signed.

The customer's on-going obligations (some of which are set out in the Management of Health & Safety at Work Regulations 1999) will include the duty to co-operate with service providers on-site, to co-ordinate measures taken by those on site to comply with health & safety law and to inform those on site of any risks to health and safety arising out of or in connection with the conduct of the customer's "undertaking". Rather than seek to artificially transfer risk to the service provider, the FM contract should be drafted to encourage communication and co-operation on all health and safety matters. Both parties need to be fully informed to be able to understand and manage risks and be certain that all reasonable steps are being taken jointly to prevent accidents.

Customers are misguided if they think they can avoid liability under the Act by outsourcing all obligations and then doing nothing and not getting involved. Such approach is likely to lead to conviction as, for any accident, almost certainly there will be some step the customer could reasonably have taken to prevent the risk occurring. Although the point appears as yet untested in the courts, based on case law and the long-established legal doctrine known as ex turpi causa, non oritur actio (from a dishonourable cause, an action does not arise) it seems that, in the event of an accident, the customer would have real difficulties in enforcing any contractual indemnity against the service provider, especially where the customer is itself convicted.

R v Associated Octel Co Limited [1995] I.C.R. 281

Adjudicator's Fees

Mon, 20 May 2013 07:59:00 +0100

In doing so, the Court of Appeal reversed Mr Justice Akenhead's decision in Systech International Limited v. P C Harrington Contractors Limited that an adjudicator was entitled to be paid his fees (calculated on an hourly basis), despite the fact that his decision was unenforceable.

The decision in question was found unenforceable due to the adjudicator's breach of natural justice. The Court of Appeal therefore concluded that the decision was of no value to the parties and the adjudicator was not entitled to payment of his fees.

It remains to be seen whether this decision will be applied in circumstances where the unenforceability of the adjudicator's decision is unrelated to the adjudicator's performance and conduct of the adjudication. For instance, a different conclusion may have been reached if the adjudicator's decision was unenforceable on jurisdictional grounds, where the parties had asked the adjudicator to proceed with the adjudication despite the respondent’s jurisdictional objection.

The Court of Appeal judgment is likely to lead to attempts by adjudicators to alter their terms and conditions so that they are entitled to be paid regardless of whether their decisions are enforceable. However, such term may fall foul of Section 3(2) of the Unfair Contract Terms Act 1977 which renders unenforceable a contractual provision in standard terms that purport to allow a party to claim “to render a contractual performance substantially different from that which was reasonably expected of him” or “in respect of the whole or any part of his contractual obligation, to render no performance at all”, unless the provision satisfies “the requirement of reasonableness” (as defined by UCTA).

As to whether parties to an adjudication would be prepared to accept terms allowing an Adjudicator his fees, even if the decision reached was unenforceable, Lord Davis suggested that the “solution would be in the market place”.

Property Rental Business Transfers and Leases – Reclaiming VAT and SDLT

Wed, 17 Apr 2013 07:01:00 +0100

This effectively reversed the established HMRC view. Previously, TOGC treatment was denied on the grant of a new lease. Any interest in the land retained by the transferor prevented the transfer of a property rental business being a TOGC.

Stamp duty land tax (SDLT) is calculated on the premium paid for the grant of a lease, plus VAT (if payable). Parties to historic transfers of property rental businesses may therefore have 'incorrectly' paid VAT, and overpaid SDLT.

In November HMRC confirmed that it would accept claims for VAT incorrectly accounted for where VAT was paid based on previous HMRC guidance that TOGC treatment would not apply in such cases. On 15 April 2013, HMRC also confirmed that claims could be made for overpaid SDLT.

In each case claims must be made within 4 years of the grant of lease.

Confirmation that SDLT can be reclaimed is particularly welcome, as SDLT (unlike VAT in most cases) is an irrecoverable cost for a transferee.

HMRC's revised position is summarised below.

HMRC's position since November 2012

HMRC now accept that:

the grant of a new lease or sub-lease is not automatically incompatible with TOGC treatment
but retention by the transferor of the freehold, or superior lease, must not "disturb the substance of the transaction"

In HMRC's view TOGC treatment can apply if the value of the retained interest does not exceed 1% of the value of the property immediately before the transfer.

HMRC give the example of a grant by A to B of a lease for a term of 999 years of a property valued at £1m. A is entitled to an annual ground rent, a right valued at £2,000. TOGC treatment would be available, subject to the other conditions being met, as HMRC would regard the interest retained (0.2% of the value) as too small to disturb the substance of the transaction.

Comment

HMRC's reversal is welcome, but in scope it is arguably narrower than the Robinson decision. HMRC have introduced a valuation approach to Robinson's "substance over form" analysis. This creates certainty, but requires that the value of the property and the retained reversionary interest must be known before the TOGC position can be determined
A retained reversionary interest value in excess of 1% does not automatically mean that TOGC treatment will not be available. It is merely "strongly indicative" that it will not be
HMRC are considering whether the surrender of an interest in land can ever be a TOGC. Based on the Robinson "substance over form" analysis, there is no logical reason why the surrender by a head lessee of its lease to the freeholder cannot be a TOGC

Court of Appeal's opinion on good faith clauses

Thu, 11 Apr 2013 11:03:00 +0100

The case was appealed and the Court of Appeal gave their judgment on 15th March 2013 in which the decision at first instance was overturned.

The Court of Appeal was clear that there is no general implied contractual obligation to act in good faith and any specific term imposing such a duty will be narrowly construed. Further, discretions involving absolute contractual rights are unlikely to be the subject of an implied term, whereas those involving an assessment or a choice as to a range of options are likely to be. Whilst the obvious reaction of practitioners may be to exclude such an implied term, Jackson LJ warned that doing so would be "extremely difficult".

The case related to the long term hospital catering and cleaning contract between Medirest and Mid Essex Hospital Services (the "Trust"). The Court of Appeal considered whether the judge at first instance was correct to find that the Trust's conduct constituted a breach of its obligation to "cooperate in good faith" and whether there was an implied term in the contract that it would not act in an "arbitrary, capricious or irrational manner" when exercising its power to make deductions from monthly payments.

The Court of Appeal reiterated that there is no general doctrine of good faith in English law and if parties to a contract wish to impose such a term they must do so expressly. It was decided that the test of whether a party acted in good faith was objective, dependent on the context and would involve considering whether reasonable and honest people would find the conduct of a party commercially unacceptable. The Court of Appeal decided that the "good faith" requirement in the contract between Medirest and the Trust meant "working together honestly to achieve the stated purposes of the contract". The Court of Appeal found that the Trust had not breached this requirement with its conduct.

The Court of Appeal further held that the Trust's discretion to award itself payment deductions and service failure points was not subject to an implied term that such discretion would not be exercised arbitrarily, capriciously or irrationally. Discretion in this context does not involve a simple decision as to whether or not to exercise a contractual right. Rather, it must involve making an assessment, or choosing from a range of options, taking into account the interests of both parties to a contract. Lord Justice Jackson found that although the contract allowed the Trust discretion to make deductions from monthly payments, it was not the same as the discretion allowed in the case law he had considered. He also distinguished it from the other cases by stating that the Trust is a public authority delivering vital services to vulnerable members of the public which could not be criticised if it found cause to award the full number of service failure points and make deductions.

Compass Group UK and Ireland Ltd (trading as Medirest) v Mid Essex Hospital Services NHS Trust [2012] EWHC 781 (QB)

Costs overruns in Target Costs contracts

Fri, 22 Mar 2013 11:12:00 Z

The Authority had entered into a bespoke Maximum Price Target Cost contract ("MPTC") with AMEC for the design and construction of a nuclear submarine jetty project in Scotland. The original maximum price had increased from £89m to £142m, and the project had overrun by £93.6m. The contract provided that AMEC was responsible for overrun costs up to £50m and that the Authority was liable for costs beyond the £50m cap. The dispute centred on whether AMEC was entitled to recover all of the remaining £43.6m from the Authority.

The TCC concluded that the arbitration panel had been correct in deciding that the Authority should not be liable for all costs however incurred, but just for costs which had been 'reasonably and properly incurred'.

AMEC expects further overruns of £235.7m and will now have to negotiate with the Authority over which costs have been 'reasonably and properly incurred'. It follows that AMEC will not be able to recover any costs caused by its own breach of contract.

The decision suggests that if negotiating a bespoke Target Cost contract, care should be taken over the apportionment of liability for costs overruns, and in particular, whether liability is subject to the costs being reasonably and properly incurred. Although the case relates to a bespoke contract, it may provide guidance for future disputes relating to standard form target costs contracts.

To view the Judgment, please click here.

NPPF – 1 year on: smooth transition or wasted opportunity?

Thu, 21 Mar 2013 11:42:00 Z

At the time the National Planning Policy Framework (NPPF) was published (27 March 2012), transitional arrangements were put in place to allow local authorities with a post-2004 Local Plan that was broadly in line with the NPPF a 12 month period to bring their Local Plan up to date. These planning authorities were allowed to give full weight to their existing policies for 12 months even if there was a limited degree of conflict with the NPPF.

Although practical assistance has been provided to help local authorities meet the 27 March 2013 deadline, according to figures published by the Campaign to Protect Rural England (CPRE) only 47.9% of local authorities have put in place an adopted Local Plan. CPRE indicate that 22.9% of councils have published (but are yet to formally adopt) a Local Plan, whilst nearly 30% have not published a Local Plan at all.

CPRE has blamed government cuts and the abolition of regional plans for the slow uptake of some local authorities publishing draft Local Plans. It has called for a 12-18 month extension to the NPPF transitional period to ensure that unsustainable and speculative developments are not allowed to proceed and that local people have an opportunity to influence where development takes place in their local area.

It seems, however, that this plea is falling on deaf ears in the corridors of Whitehall. Nick Boles has countered the CPRE figures by stating that 7 out of 10 local councils now have published Local Plans compared to 3 out of 10 previously and that "good progress" has been made across the remainder of councils. Boles re-stated that strong protections remain in place for the green belt, open countryside and areas of outstanding natural beauty when considering planning applications against the planning framework as a whole.

Against this background, one of the first success stories for the government's localism agenda has emerged. The recent referendum in Upper Eden, East Cumbria resolved to adopt a Neighbourhood Plan – the first adoption of its kind in the UK.

The referendum brought out three times the number of voters who turned out for their recent police and crime commissioner elections and what is more, 90% of the 1,452 votes cast by local residents (33.7% turnout) were in favour of adopting the Neighbourhood Plan, which covers 16 parishes in East Cumbria. The Neighbourhood Plan will now be formally included in Eden District Council's development plan this coming April and will become material in terms of planning applications for development in those 16 parishes in East Cumbria.

Despite CPRE's protestations, extending the transitional period set out in the framework would be unlikely to encourage the remaining 50% of councils to expedite adoption of their up to date Local Plans. The 27 March 2013 deadline is likely to remain in place and in the meantime, the 50% of councils still to adopt their Local Plan should take a leaf out of East Cumbria's book. Localism can work – but it needs the right combination of enthusiastic local residents and hard-working councils to get it off the ground.

New Kids on the Block : alternative funders in the real estate lending market

Fri, 15 Mar 2013 11:45:00 Z

With a mountain of mature real estate debt coming up for refinancing in 2013, the key question for the market is whether these new kids on the block can really fill the void left by the retreating banks.

Who are the alternative funders and why have they entered the RE lending market?

In the five and a half years since the start of the credit crunch, real estate lending has been hit by a serious and increasing nervousness to lend. This nervousness, coupled with stricter regulation and capital adequacy requirements, has resulted in banks deleveraging their real estate portfolios and pulling back from the property lending sphere. Notable players reducing or withdrawing new lending in the market include Eurohypo and Allied Irish Banks.

The void is now being filled by so-called "alternative funders". The key players are insurers, private equity houses and pension funds. Recent examples of these deals include L&G's £121m financing for Unite Group and M&G Investments' £115m financing for iQ Property Partnership (both secured against regional student housing portfolios). It was reported last week that L&G is looking to provide over £1bn of funding to housing associations, starting with a £102m 15 year loan to Hyde. Innovative funding solutions have also been presented by Oaktree Capital, through their dedicated residential lending vehicle, Titlestone, who provide finance for residential development.

So, is non-bank lending the medicine the real estate lending market has been waiting for and will it help to close the funding gap?

Focusing on prime assets

Not necessarily. Non-traditional funders of the pension and insurance fund variety need to look after their own investors and are attracted by the stable and relatively attractive returns offered by commercial property compared with other fixed income investments such as gilts. They are therefore – quite understandably – likely to be highly selective about the asset classes against which they are willing to lend. Alternative funders' appetite for non-core assets still appears to be lacking. They are not necessarily looking to take risks where banks will not: they are simply finding opportunities in spaces vacated by banks, as the latter retreat to try and build up their capital reserves in readiness for Basel III. So whilst their presence in the market is very welcome, in the short term at least, non-prime asset owners will still have to think ever more creatively about their financing solutions.

Interestingly, DTZ's research paper on the Net Debt Funding Gap last November reported that the UK's funding gap is closing at a much faster rate than other European countries and suggests that the our gap could close as early as 2015. DTZ also predict that over this time period, insurance companies will make up about two-thirds of the non-bank lender market.

Watch out for Part II of this series where we'll look in more depth at how certain alternative funders have structured their loans.

What are the potential risks associated with BIM?

Thu, 14 Mar 2013 11:51:00 Z

These risks associated with BIM can, predominantly, be broken into two categories: firstly, risks caused by human error and poor communication; and secondly, risks associated with the BIM set up.

There are the inherent problems associated with using complex systems on construction projects. These types of risks are not particularly new, but there is a danger of over-reliance on systems which will only be as effective as the information that is being placed into them. No amount of sophisticated technology will remove the possibility of human error. If this is compounded by poor communication between parties when making changes to a BIM model (or models), problems may occur.

A US court recently heard its first BIM-related case. During the construction of a life-sciences building at a university there was a breakdown in communication between the client, the design team and the contractor. The components for the plumbing system in the building fitted perfectly in the BIM model, but failed to work because of a failure to install the components in accordance with a very specific sequence. This illustrates that the BIM is only as good as the people using it and the communication of relevant information, such as sequencing requirements.

As a shared model, allowing greater collaboration, BIM changes the culture of the design process and the interaction of relationships between the parties on a construction project. How this change is managed will affect parties' exposure to risks. For example, it is unlikely that a construction project will use a single BIM model for all purposes. This may lead to a flawed interaction between different parties' software.

Another key concern is how BIM will affect the design liability of consultants, contractors and subcontractors. Contributors to a BIM model are likely to come from the entire spectrum of those involved in the design of a construction project. Uncertainty over which parties contributed each aspect of the model is likely to lead to potential for confusion over who is liable if a particular aspect of the BIM model leads to a dispute on a construction project.

Even though a BIM may be issued collaboratively, designers risk assuming overall responsibility and there is certainly a danger of appointments including overlapping duties and shared responsibilities in relation to BIM. Design professionals and contractors alike will want protection from potential liability for their contributions to BIM.

Good Faith Clauses

Tue, 26 Feb 2013 11:56:00 Z

Nevertheless, express good faith clauses sometimes appear in bespoke construction contracts, PFI concessions and some forms of standard construction contracts, particularly NEC3.

However, rarely do these provisions have any teeth and they are often interpreted very narrowly by the courts. The recent High Court decision in Compass Group UK and Ireland Ltd (trading as Medirest) v Mid Essex Hospital Services NHS Trust [2012] EWHC 781 (QB) was therefore somewhat unexpected.

In this case, the court found that a duty to act in good faith contained in a public sector hospital catering contract had been breached. The contract incorporated a mechanism that enabled deductions to be made from service payments in the event of performance failures by Medirest. The court found the way in which the Trust had calculated the performance deductions to be absurd and its failure to respond to Medirest's attempts to resolve the dispute were a breach of the duty to act in good faith.

Nonetheless, whilst Medirest was entitled to terminate the contract in accordance with an express termination provision, the Trust was also entitled to terminate the contract due to Medirest's accumulation of the relevant number of service failure points within a certain period. Therefore, neither party could succeed in their claims for post-termination losses.

The court favoured a broad interpretation of the duty to act in good faith on the grounds that the parties had entered into a long-term contract for the delivery of food and other services within a hospital, the performance of which required continuous and detailed co-operation between the parties. Indeed, the fact that the contract related to the provision of services to members of the public and hospital patients is likely to have had considerable bearing on the court's decision.

Care should therefore be taken when seeking to apply the principles of this decision. For example, the duty to act in good faith is unlikely to counter the strict time bars relating to notifications of Compensation Events and other process-driven requirements in NEC3 contracts. Nonetheless, there are often other contractual provisions which can be deployed to bring about the "right outcome", not least, in relation to disproportionate service failure calculations, perhaps unenforceable if the deduction could be construed as a penalty.

Rights to Light Reform: Law Commission Consultation

Wed, 20 Feb 2013 12:33:00 Z

A right to light is an easement that gives neighbouring owners a right to receive light to their land or buildings through defined apertures (usually windows) across another owner's land. The latter cannot interfere with the right – for example, by erecting a building on its land that blocks the light.

The Law Commission published its consultation as a result of increasing debate about the impact of rights to light. As reported in the Telegraph earlier this week, the Department for Communities and Local Government were said to be interested in reforming the law after the High Court ordered a developer in Leeds to demolish part of the building in the city centre which obstructed a neighbour's light in 2010 (see HXRUK II (CHC) Ltd v Heaney [2010] EWHC 2245 (Ch)).

Currently an owner of a right to light which is going to be obstructed is, in principle, able to apply for an injunction against a developer at any time before the development is completed or, as in the Leeds case, even after the development is completed seeking an order that the development (or the relevant part of it) be demolished. The owner of the right to light may, and commonly does, consent to interference with their right in exchange for compensation. However, according to the Association of Light Practitioners there is currently a perception that landowners who benefit from a right to light often sit back and not engage in negotiations with the developer "to increase the sum they can demand" in compensation.

The Proposals

The Law Commission's aim is to a reach an "appropriate balance between the important interests of landowners and the need to facilitate effective and efficient use of land through its development."

In the consultation paper the Law Commission makes several proposals on which they seek consultees' views including the abolition of the acquisition of rights to light by prescription (i.e. long use) and proposals to introduce a statutory test to simplify the way in which Courts decide whether to award damages instead of granting an injunction in rights to lights cases. This new guidance would allow Courts to award damages instead of an injunction if the grant of an injunction would be disproportionate. The Court would have to consider factors such as the conduct of the parties and whether monetary compensation would be an adequate remedy, when deciding whether to award damages.

In response to the issue of landowners using their rights to light as a ransom, or bargaining chip, the Law Commission has proposed the introduction of a statutory notice procedure. This procedure would allow the developer to trigger a process whereby, in the event that agreement cannot be reached regarding compensation, the neighbouring owner would have to apply for an injunction within a certain period of time or they would lose the right to do so altogether.

This is plainly an area of law where reform is much needed. The existence of rights to light causes great uncertainty for developers and, particularly following Heaney, compensation payments are commonly now made which are wholly disproportionate to the loss of amenity/value actually suffered by the neighbouring owner.

Further Details

The consultation period runs until 16 May 2013. The consultation paper along with full details of how to respond is available here.

The Law Commission has emphasised that the proposals in its paper are not conclusive and responses will influence its final recommendations. As a result consultees are "strongly encouraged" to respond to its proposals.

These are important proposals and we recommend that anyone with an interest in this area of law should certainly make their voice heard.

JCT Insurance Options: what's the right fit for fit-out?

Mon, 18 Feb 2013 12:39:00 Z

A tenant looking at the JCT contract will quickly decide that Option C is the right one for their fit-out project as it applies to works being carried out within an "existing structure". The other two options – A and B – apply to new buildings, so on the face of it this approach seems to be correct. However, it may in fact leave the tenant exposed.

The problems with Option C

Under Option C, the tenant will be required to take out and maintain two joint-names policies:

(i) an "all risks" policy covering the works themselves; and

(ii) a "reinstatement" policy covering the costs of repair arising from damage to the existing structure and contents caused by 'Specified Perils' (such as fire and flood).

The all risks policy is straight forward enough, however difficulties arise in relation to the reinstatement policy, due to the way commercial property is insured, in a number of areas.

Firstly, the landlord will already have building's insurance, and therefore a tenant taking out a reinstatement policy is effectively seeking to insure damage to the same building, which risks vitiating one or both policies, potentially limiting either party from recovering.

Secondly, there is the question of whether the tenant even has an insurable interest in relation to the rest of the building, in which case it will either not be able to acquire the policy or may find the policy doesn't respond in full to the damage.

Thirdly, even if they can get it, the cost of the reinstatement policy is likely to prohibitive to the tenant, especially if the building in question is a high value, high storey office property, when compared to the cost of the works.

Lastly, there are also practical issues in relation to a tenant trying to arrange this cover, such as valuations, assessing reinstatement costs and determining the building contents of the other areas of the building.

What are the solutions?

Of the tenants who pick up on these issues, some believe that they have found the solution in simply relying on the landlord's existing policy to double up as a reinstatement policy. Unfortunately this is rarely the right answer: the landlord's policy will not automatically be compliant with the requirements of Option C, particularly in relation to the joint names and waiver of subrogation requirements, meaning the tenant is in breach of their insurance obligations to the contractor, potentially leaving them facing the entire bill for the reinstatement.

Perhaps the most straightforward solution is for the landlord to extend the existing building insurance policy and name the tenant and contractor on it and, currently done, this would be an end to the issue. However, in recent years we have seen many landlords refusing to do so because they neither want (i) the premium to be affected by a contractor's claim nor (ii) the administrative burden.

Faced with this scenario, the tenant may then look to the other insurance options and believe it can place the risk on the contractor under its public liability policy. Tenants should also be wary with this approach, as not all public liability policies will respond to Specified Perils and/or may not consider the existing structure as "third party" property. Further, even if the policy does respond, it may not cover the full reinstatement value. So, again, the tenant risks being uninsured or underinsured, having failed to comply with its insurance obligations to the landlord.

Thankfully, some contractors are now dealing with this issue head-on and tender on the basis that they offer a solution; namely a public liability policy with an adequate limit of indemnity which responds to losses to the existing structure and contents arising from Specified Perils. This significantly reduces the tenant's exposure and means they will not be faced with the prospect of unforeseen insurance premiums and the headache of organising cover.

Amend your contract to fit

Whatever the solution, insurance of a tenant's works is not an issue which should not be ignored by any of the parties concerned, and early discussion, including with the landlord, is important. Once the approach is agreed, the JCT contract will need to be amended accordingly, to avoid any nasty, and uninsured, surprises for the tenant.

Government property, Kirstie and Phil style?

Fri, 01 Feb 2013 12:42:00 Z

On Friday (26th January), the Government launched its "find me some government space" initiative, complete with a homebuyer style website, allowing prospective purchasers to search for properties by location, in the same way you'd search for your own home.

So what's available? I had a little play on the site this morning, and it turns out - anything.

From the rather grand Admiralty Arch in central London, to less obvious "opportunities", such as a mortuary in Folkestone. In the case of the latter, this is being sold off as a potential housing development. The prospectus declares the site to be a "former Victorian hospital, including a disused mortuary, chapel and hall and tennis court with associated land". One suspects the tennis court may need some TLC.

The idea behind the initiative, as you would expect, is to help save the Government money, and hopefully encourage new opportunities, jobs and growth in local economies as new life is brought into empty, unused properties. Of course this can only be a good thing.

With my work hat on however, I am one of the resident RPC outsourcing lawyers. Helping customers, both public and private sector, maintain or rationalise their property portfolios is one of the area's my clients focus on.

In recent negotiations whilst supporting FM contractors, we've seen a real push by customers for the inclusion of "divestment" provisions – which basically say that, even if the customer sells off some of its estate which is within the original portfolio, then the FM contractor will continue to deliver the FM services to that property for the remainder of the contract term, despite the fact that it has been sold off to a third party. This could certainly be a consideration under this new initiative, with buildings such as magistrates' courts and hospital spaces being pushed for sale.

On-going service delivery to former public space could of course be a valuable selling point to prospective purchasers, but from a FM contractor perspective, there are obvious risks to consider. For example, who will be obliged to pay the FM contractor for the services, once the property is divested? Will a new contract be entered into? Will it differ from the original terms, and if so, how? What effect will the divestment have on the original contract terms – can any commitments re savings still be met, on a reduced portfolio?

It's all manageable of course, with some forethought (and a decent change control mechanism), but the reality is here. The Government's property estate is going to shrink even further. With a mortuary penned as a potential housing development, and Wakefield's former fire control centre down as a potentially good "disaster recovery and training facility" or, perhaps, just an office, FM contractors should also be ready to embrace pretty imaginative changes in use.

https://www.gov.uk/find-government-property

The End of the British High Street?

Thu, 31 Jan 2013 12:46:00 Z

In January alone we saw Jessops, HMV, and Blockbuster all enter into administration. Of course, these are not the first retailers to suffer following the global economic downturn in 2008. Woolworths was the first big name to fall with smaller chains such as Peacocks, Clinton Cards and Barratts following suit. In November last year electrical giant Comet collapsed with the loss of 6,900 jobs.

However, what is particularly worrying is that these most recent casualties represent former stalwarts of city centre shopping, with large property portfolios. As a result, landlords who own retail units in city centres will be looking on nervously as the future of High Street shopping seems to be hanging in the balance.

According to CBRE, the property agent, retail administrations since the onset of recession in late 2008 have cost 198,000 jobs and £1.48bn in rent for landlords. All 187 of Jessops' stores were closed soon after PwC was appointed as administrators and if HMV and Blockbuster also fail the total store closures could reach almost 1,000. The Financial Times is reporting that this would leave the retail vacancy rate at a record 16.5%.

With the trend for internet shopping set to continue (retail research group Verdict estimates that the internet will account for about £1 in every £8 spent in the UK this year) can the High Street survive?

Saving the High Street

In March 2012 the Government announced it was to accept all the 28 recommendations made in Mary Portas’ high street review, which included:

• Establishing National Market Days;

• Removing unnecessary byelaws that hinder traders and businesses;

• Encouraging local authorities to sign up to the Leasing Code; and

• Creating 'Town Teams' in charge of operational management and development of high streets.

However, in order to stem the tide of retailing failures, landlords will have to work with businesses in order to encourage would-be tenants to open stores when many larger chains have a surplus of physical outlets.

This might take the form of shorter leases, longer rent-free periods or a low base rent with a turnover rent provision so that rent is linked to the tenant's financial performance – after all, a lower rent is better than no rent at all.

Another possibility is allowing a tenant to pay their rent monthly, rather than quarterly, which would allow tenants to budget better and prevent that "big financial hit" that comes every quarter day. Whilst this will help the tenant it might also be beneficial to the landlord in the event that the tenant goes into administration. When a company appoints an administrator, that administrator will incur liabilities to third parties in order to continue trading. This might include purchasing stock/materials or paying utilities etc... Under the Insolvency Act 1986 the administrator must discharge these liabilities before discharging other liabilities of the company, including any liabilities incurred prior to the appointment of the administrator.

So in a situation where the lease provides that the tenant must pay rent quarterly, in advance, if the tenant fails to pay the rent on the quarter day and appoints an administrator shortly after, then this would mean the quarterly rent was incurred prior to administration and would therefore rank below any expenses incurred during administration. Furthermore, because an administration moratorium suspends a landlord's right to forfeit a lease, a tenant who appoints an administrator shortly after a quarter day can enjoy the remainder of the quarter effectively rent-free. If, however, the rent was paid monthly, the longest this 'rent-free' period could be is one month thereby reducing the extent of a landlord's exposure to an unpaid rent period.

Landlords' are feeling vulnerable in the current climate and would be well advised to negotiate an appropriate rent deposit, rent guarantee insurance and a guarantor for the tenant's obligations if possible.

The Future

Local governments and investors also have a role to play in the way they design their High Streets going forward – people will be much more likely to visit the local High Street (and more often) if their movement was not solely driven by shopping. The Royal Town Planning Institute has recently suggested that town centres should offer more variety, such as health, education and leisure facilities.

The High Street will survive, in one form or another, and every cloud has a silver lining: the demise of national chains has created an opportunity for smaller independent shops to move into previously unaffordable city centre locations, and given the high retail vacancy rate, they have a stronger bargaining position than before.

Is the Green Deal a great deal?

Tue, 29 Jan 2013 13:07:00 Z

The Green Deal is a government introduced funding programme which began yesterday and allows energy efficiency improvements to be installed on a property by the owners or occupiers at no up-front cost. Payments are made at a later date in instalments alongside energy bills by the person responsible for payment of energy bills for the property. For an improvement to be eligible for finance under the Green Deal it must meet the "golden rule", that is the expected financial savings resulting from installing improvements must be equal to, or greater than, the cost of repayment over the term of the Green Deal plan.

The advantages seem obvious: 'buy now pay later' improvements, lower energy bills, lower carbon-footprint and an energy efficient property potentially worth more on re-sale. However, the Green Deal is a long term measure: consider the impact for short term leases and this paints a less attractive picture.

In fact, there is little benefit to short term tenants. The "golden rule" ensures that most financially viable Green Deal plans will last longer than the average short term tenancy. So, the tenant effectively pays for energy saving improvements to the landlord's property but will not be in occupation long enough to reap the long term benefits. Whilst these improvements will result in lower energy bills, during the Green Deal plan these savings will be eaten up by the Green Deal instalments the tenant is responsible for paying. A short term tenant is unlikely to be in occupation beyond the Green Deal plan period so will never benefit from paying lower energy bills minus instalments. On top of this, the tenant will be disrupted by the installation of the improvements and as a short term lease is likely to have more restrictions on disposal, the tenant won't profit from the property being more energy efficient when it sells its interest.

You may think the picture is more rosy for the landlord. However, as the Green Deal plan is likely to be longer than the lease, the landlord will have to pay the energy bills during void periods. This would not be much of an issue pre-Green Deal as these energy bills would be exceptionally low given the property would be unoccupied. Green Deal payments, however, are still payable regardless. Further, the Green Deal could affect property marketability and as a result the landlord may find letting the property increasingly difficult as prospective tenants become wise to the issues surrounding the Green Deal. Might this be a ground for refusal of consent for alterations?

It remains to be seen how the Green Deal will be implemented and the effects it will have on leasehold properties. However, with the average commercial lease length dropping to less than five years, it is likely a huge number of landlords and tenants might actually be adversely affected by this seemingly beneficial programme.

https://www.gov.uk/green-deal-energy-saving-measures/how-the-green-deal-works

Permission to appeal denied in Walter Lilly v Mackay

Tue, 29 Jan 2013 12:55:00 Z

RPC represented the successful Claimant in the main action, with Mr Justice Akenhead handing down a landmark judgment covering extension of time and concurrency, loss and expense and global claims. His findings, summarised briefly below, are now set to shape this important area of construction law.

Extension of time and concurrency: Mr Justice Akenhead found that where there is an extension of time clause, and delay is caused by two or more effective causes, one of which entitles the contractor to an extension of time as being a Relevant Event, the contractor is entitled to a full extension of time.

Loss and expense: The court took a pragmatic and commercial approach to the loss and expense clause in question, which required the contractor to submit details which were "reasonably necessary" to the calculation of loss and expense. The court found that entitlement to loss and expense will not be lost if some of the loss details are not provided. Further, "reasonably necessary" detail did not necessarily give rise to an obligation to provide all of the backup accounting information. Finally, it concluded that the loss and expense clause should be construed in a "sensible and commercial way that would resonate with commercial parties in the real world".

Global claims: The Judgment stated that contractors do not have to show that it would be impossible to plead and prove cause and effect in the usual way, in order to bring a global claim. A global claim will not necessarily fail by reason of factors for which the claimant contractor is responsible or which cannot be proved not to have contributed to the global loss. The consequence would simply be that the claim would be reduced by the value of the event or series of events in question.

http://www.bailii.org/ew/cases/EWHC/TCC/2012/1773.html

NEC3 Engineering and Construction Contract "Guidance Notes": more important than you realise for interpreting the ECC

Fri, 18 Jan 2013 13:11:00 Z

Clause 50.2 of the ECC states, "Any tax which the law requires the employer to pay to the contractor is included in the amount due". Firstly, the law, technically, requires the contractor to pay the VAT (not the employer) and, secondly, the use of 'included' is pretty much the opposite of a crystal-clear statement that VAT is exclusive or in addition to the amount due.

However, the NEC3 Engineering and Construction Contract Guidance Notes (the 'Guidance Notes') for Clause 50.2 state that tax is to be added to the price of the works to calculate the amount due. Whilst the Guidance Notes provide some clarity as to what is intended, is it desirable that the Guidance Notes should have to be referred to for the answer?

We would always advise that the intention of the parties should be discernible from the contract itself; and having to refer to other materials to distil the meaning is never ideal. However, parties – before entering into the ECC and also after it is signed – regularly refer to the Guidance Notes to understand the terms of the ECC.

This does raise an important question as to the status, in law, of the Guidance Notes. The position is that they are not legally binding. However, when there is a question of interpretation, the Courts have determined that (i) consideration should be given to 'absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man'* and (ii) 'the meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using the words against the relevant background would reasonably have been understood to mean'*.

In view of this, the Guidance Notes could carry considerable persuasive weight when trying to interpret the ECC in the event of a dispute. The Guidance Notes could, of course, be dismissed as irrelevant if, in fact, they did not form part of relevant background. However, in reality, parties may struggle to exclude them from a dispute regarding interpretation given their general acceptance within the construction industry for understanding the ECC provisions.

Accordingly, if the Guidance Notes do not corroborate with what is actually intended it would be prudent to insert a clause in the ECC that expressly excludes them for the purposes of interpretation.

So, whilst (we hope) we'll never get to the point of having to negotiate and agree the Guidance Notes, it is quite clear that they have a potentially significant status in view of the rules on contract interpretation.

*Lord Hoffman; Investors Compensation Scheme v. West Bromwich Building Society [1997] UKHL 28; [1998] 1 All ER 98; [1998] 1 WLR 896 (19th June, 1997).

E-Nik Ltd v Department for Communities & Local Government [2012] EWHC 3027 (Comm)

Development incentives – but at what cost?

Mon, 14 Jan 2013 13:15:00 Z

Boles' announcement follows the government's consultation in October 2011 to require CIL charging authorities to allocate a 'meaningful proportion' of CIL to the areas where development occurs. Boles has proposed that, for areas where a neighbourhood plan is in place, 25% of CIL revenue be given to the local community. Neighbourhoods without a neighbourhood plan would still receive a 15% share of CIL revenue but this would be capped at £100 per council tax dwelling.

It is a clever approach aimed at both incentivising new housing developments and encouraging communities to adopt neighbourhood plans. It might even be viewed as a win-win scenario: the government gets to see new homes being built and local communities get a bit of extra cash to re-roof their local community centre or town hall. But in the end, there is a limited pot of gold and this is just robbing Peter to pay Paul.

Clearly there is no 'incentive' unless the local planning authority (the charging authority) for the area in which the development is proposed has an adopted CIL charging schedule. Local planning authorities are entitled but not obliged to charge CIL. While the number of local authorities with charging schedules in place is still relatively low, this is steadily increasing as the ability for local authorities to seek section 106 planning obligations will be severely constrained after 2014. The money raised from CIL is meant to be calculated and spent on infrastructure needed to support the future development aspirations of local authority areas, having considered the economic viability of proposed development following the imposition of CIL. Infrastructure includes things such as schools, highways, open spaces, flood defences etc. In an ideal world, the level of CIL adopted will be the maximum amount possible without thwarting development.

If 25% (or even 15%) of CIL is to be allocated to local communities, this will be at the expense of local authorities having sufficient revenue to fund the infrastructure upon which CIL was originally based. The government's view seems to be that this is the cost local authorities and the wider society as a whole must pay to get new homes built.

Will Planning Performance perform?

Thu, 13 Dec 2012 13:18:00 Z

The aim of the consultation is to determine how a Local Planning Authority's (LPA) performance will be judged - underpinning the Government's Planning Guarantee that the application process (including appeals) will take no longer than one year. The consultation seeks views on the criteria which should be used to judge a LPA's performance and how to assess and identify both underperformance and improved performance. But how will these criteria work in practice?

Under the proposals, if a developer makes an application for planning permission for a major development in an area where there are clear failures in the LPA's performance, the developer would be entitled to apply directly to PINS. The criteria by which LPAs may be designated as "poor performers" will include consideration of both the speed and quality of the LPA's decisions over the previous two years.

An LPA may be designated as "poor" based on the speed of its applications if 30% or fewer of its major development applications (e.g. applications for 10 or more houses or over 1000m2) have been determined within the 13 week statutory determination period. This could potentially cover a large number of applications in each LPA's jurisdiction. In terms of quality, an LPA's performance may be judged to be "poor" if 20% or more of refusals for major applications have been overturned at appeal in the last two years.

If the LPA decision making process is judged to be too slow or if the quality of the decisions is judged to be poor (i.e. decisions are frequently overturned, so weren't robust in the first place) then the LPA, will be designated as a "poor performer". Designation would last for one year and would only be removed following a further review of the LPA's performance.

It remains to be seen whether the consultation will ultimately produce assessment criteria for LPAs which strike at the heart of the issues at the LPA level and whether the issues faced by developers during the planning process will be properly addressed through these proposals.

Arguably, the ability for applicants to apply directly to PINS would be contrary to the Government's localism agenda and may lead to a further disconnect between the application of power at central and local government level, while also potentially straining relations between applicants and the LPA itself.

Critics would argue that the proposals will create further problems. For example, LPAs who do not agree with the proposals may attempt to manipulate their performance statistics through delaying the validation of applications, refusing consents or seeking extensions to the statutory determination deadlines by demanding the use of planning performance agreements at the expense of the applicant.

Will the threat of designation be enough to change the culture of poorly performing LPAs, speed up the planning process and get development moving forward? The consultation closes on 17 January 2013 - watch this space.

Planning performance and the Planning Guarantee (DCLG)

Leaving customers without signal: the task of re-building the Telecoms Code

Wed, 05 Dec 2012 13:22:00 Z

Although the Code is designed to give certain network operators the right to install and maintain telecoms apparatus on public and private land, news stories such as this clearly demonstrate that it does little to prevent landowners from holding network operators to ransom in order to gain access to such land, particularly during difficult periods when operators are faced with an angry public who have come to expect a certain level of service coverage.

The Government has committed £680 million of investment in broadband, and intend to ensure that the UK has the best superfast broadband network in Europe by 2015. In order to achieve this, the existing infrastructure needs to be modernised accordingly. The Law Commission launched a consultation on its proposals for reform of the Code, which closed on 28 October 2012. The full report is due to be published in Spring 2013, with legislative changes being brought in by 2015.

Property owners and occupiers should be aware of the proposals being put forward, since the rights of landowners may change. The Law Commission's key proposals include:

• a new general right in favour of upgrades to apparatus;

• a new general right to share apparatus with others and to assign Code rights to other Code operators;

• retention of the procedure for landowners to require the alteration, relocation or removal of equipment subject to the landowner paying the network operator's costs. The Law Commission also recommends that it should no longer be possible to contract out of this paragraph; and

• a new right to contract out of the security provisions contained in paragraph 21 of the Code. This would provide landowners with more certainty when seeking to redevelop their property.

Clearly, if some of the above proposals go through, landowners will lose a degree of the control that they currently enjoy over equipment placed on their land, together with their ability to generate income from granting such rights over it. However, given the importance of the telecommunications sector to UK economic growth, it is unlikely that the Government will curb measures designed to improve a network operator's ability to deliver a modernised communications network.

H&M: Brave New World?

Tue, 27 Nov 2012 13:24:00 Z

That phrase is becoming more contentious as the market remains difficult. The balance of power has definitely tilted towards the tenant and there is much speculation as to when market conditions will improve.

There has been quite a bit in the press about H&M's demands for lease provisions which include reducing the amount of rent it pays if 15% of a shopping centre falls vacant. If this were to happen H&M would immediately cease paying the base rent and would revert to simply paying the landlord the "top-up" fee. Further, if the vacancy rate remains at 15% or rises then it can reduce its rent even more and could ultimately terminate the lease.

Apparently, H&M have similar provisions in leases for its stores in France, Germany and Spain and wants UK landlords to have closer relationships with the retailer and believes such provisions will mean landlords will be incentivised to manage shopping centres better (it is questionable however if there is anything individual landlords could have done to stop Comet going bust though).

These provisions are certainly controversial. It is questionable whether funders would accept them let alone landlords. However, it may well be that in some instances having such innovative provisions in a lease is a price worth paying to get occupiers such as H&M into a scheme. It is suggested that to counter-balance such tenant friendly clauses a landlord should be entitled to higher than market rent while the centre is occupied. The rent review clauses will also need to be carefully drafted and funders' input sought. Could this trigger a new landlord/tenant relationship which is part of what H&M is trying to achieve?

End of the line for Village Greens?

Wed, 14 Nov 2012 13:27:00 Z

Given the relative ease and low cost involved in making such applications the legislation introduced by the Commons Act 2006 could be open to abuse allowing those against development to issue an application simply to halt a scheme.

The Government's proposals published recently in the Growth and Infrastructure Bill will assist developers to avoid TVG applications.

The Bill provides two forms of protection:

The first is that it will not be possible to apply for registration of a TVG where planning permission has been granted, or applied for and publicised in respect of the land. The restriction will also apply where the local planning authority has identified the land for potential development as part of a local or neighbourhood plan, or included in a published draft of a relevant plan. If the planning permission expires without development or the status of the land in the development plans changes, the right to apply for registration is reinstated. In this case, the period during which an application was not permitted is disregarded when calculating the time limits for making an application for registration under the Commons Act 2006.

The second allows a developer to prevent local residents gaining any new rights by effectively ring fencing his property. In order to do this the developer will deposit a statement with the commons registration authority, together with a map showing the area of land affected. The statement will bring to an end any periods of use as of right that have accrued so that if the use has not been on-going for at least 20 years, it cannot be relied on to make a registration. The deposit of a statement will not prevent a new period of time running under the 2006 Act and so further statements may be required. The local authority will maintain a register of all statements which it will be possible to search.

In addition, the bill also introduces a fee for making an application. Existing TVGs will retain full protection and the registration of TVG's continues where no development is either proposed or the subject of community consultation. The introduction of these measures, which are expected to be in place by Summer 2013, ought to prevent much needed development from being sterilised or frustrated by the TVG process.

Rights of Light

Tue, 23 Oct 2012 13:28:00 +0100

The 20 year time period is set by the Prescription Act 1832. Once the 20 year time period has run the right of light is established.

The Prescription Act does, however, include an important exception. Section 3 of the Act provides that a right of light will not arise if the light is enjoyed by the consent of the building owner. This is frequently seen when a parcel of land is sold off and the vendor reserves the express right to build on his retained land. This, if correctly drafted, will operate as a consent for the purposes of S.3 and the neighbour will not then be able to claim a right of light over the building owner’s land.

The recent decision in CGIS City Plaza v Britel Fund Trustees is however a useful lesson about the importance of (a) drafting consents of this type with care and (b) if buying land said to have the benefit of such a consent to check whether it is effective.

In CGIS the property deeds did include a consent of this type relating to a parcel of land that had been sold on, many years before, by the City of Birmingham Corporation to the Bank of England. The consent was expressed to protect development rights to land retained by the Corporation – land which now forms City Plaza. The successor in title to the Bank Of England (Britel) claimed, however, that this consent only operated to the extent that City Plaza remained in the Corporation’s ownership and not, as was the case on the facts here, where the Corporation had sold the land on.

In the event the High Court held that the consent did fall within the provisions of S.3 so Britel could not block development on the City Plaza site. A good result for the developer in the end but generating substantial costs, delay and uncertainty whilst the proceedings ran their course. From a drafting perspective the dispute would have been avoided had the wording of the consent made it clear that the consent related to the particular parcel of land irrespective of whether it remained in the Corporation’s ownership.

The case for reform

The Government is concerned about rights of light given the brake it puts on development. This whole area of law is being be reviewed by the Law Commission but an early change to the law is not yet in prospect – the Law Commission does not expect to publish a final report, with a draft bill, until early 2015.

Building Information Modelling

Wed, 25 Jan 2012 13:33:00 Z

So, what is a BIM?

In simple terms, a Building Information Model, or BIM, is the digital representation of physical and functional buildings. A BIM is not a design tool; rather it contains a wide range of information about the design, construction and operation of a building which can be used throughout the life cycle of a construction project.

Far from being a single, prescriptive tool, the level of sophistication of BIM models varies. In its simplest form, at what is called BIM Level 0, BIM may involve two dimensional drawings, in hard copy format, created using a CAD system. At its most complex, at BIM Level 3, data is held on an integrated computer system that can be accessed by all members of a construction team. A BIM Level 3 system will include costs, programming and life cycle facility management information.

One of the main benefits resulting from the use of BIM on construction projects is, by virtue of an integrated design, the resolution of potential clashes at the design stage of a project, as opposed to further down the line once construction has commenced. Avoiding such clashes will result in related benefits of cost and time savings. In addition, better programming will allow for the more efficient delivery of materials and equipment to the construction site, more accurate costing of changes to works and an overall better understanding of the works required and this should reduce the risk attached to the pricing of works packages.

The benefits of BIM are also envisaged to last beyond the construction phase of a building: BIM can act as a tool for the management and operation of a building (including lifecycle costs).

Why is BIM significant?

The Government Construction Strategy, published by the Cabinet office on 31 May 2011, announced the Government's intention to require collaborative BIM Level 2 (which is a managed 3D environment held in separate discipline BIM tools (i.e. there is not one single database for all information and commercial data is held separately; although, it may be accessed using appropriate software)) on all central Government department projects by 2016. This has led to an increased focus on BIM and its implications for the construction industry.

The projected growth of BIM over the next few years is likely to affect a wide variety of professionals within the industry, including architects, designers, contractors and project managers.