UK: Property Update June 2011

Welcome to Druces LLP's Property Update June 2011. You will find in this update recent case law, civil procedure and legislative changes relevant to the Property industry, as well as contact details in case you would like further information on these issues.

Case Law update

E-mail communications: Nicholas Prestige Homes v Neal

The Court of Appeal has confirmed that an exchange of e-mails can create a contract. An estate agent (Prestige) claimed it had sole selling rights for a property on the basis of the exchange. The seller (Neal) argued that a contract had not been created. She said she had not read the e-mail or the attachments and had not intended to instruct Prestige on a sole agency basis. The Court held that the exchange did create a contract.

This case demonstrates the importance of understanding fully the consequences of communications by email. The fact that e-mails can be sent and responded to instantly means that parties often give themselves no time to reflect on the content of their communications. That leads to an increased risk of misunderstandings. It also demonstrates the manner in which the Courts will give effect to the plain meaning of the words used by the sender irrespective of the sender's actual intention. A full note on this case can be found on our website.

Guarantors: K/S Victoria Street v House of Fraser (Stores Management)

In last year's Good Harvest case, the Courts ruled that a guarantor of a tenant could not validly provide a guarantee of the tenant's assignee. In addition, the Court stated that a guarantee of an Authorised Guarantee Agreement (AGA) was also probably unenforceable. The ruling was due to be appealed in the Court of Appeal but this has now been settled, so the original judgment stands.

The issue has been re-considered in K/S Victoria Street v House of Fraser (Stores Management) Ltd and others. Here a term in a sale and lease back agreement required the guarantor of the tenant to guarantee the tenant's assignee's obligations under the lease on assignment. Despite disagreeing with some of the reasoning, the Court followed the Good Harvest case. It held provisions requiring a guarantor to guarantee an incoming tenant's obligations were void and unenforceable. An appeal is pending.

Rights to Light: HKRUK II (CHC) v Heaney – Update

The Court decided that it would not permit a developer to act deliberately in breach of a neighbouring party's property rights. It therefore granted an injunction ordering the removal of these offending works. Our briefing note on the case can be accessed via our website. This case casts doubt on the previously accepted view that the Court would only award damages in such cases and the developer's appeal was seen by some as an opportunity for clarification. However the appeal has now been settled out of court so the original judgment will stand.

Entire Agreements clauses: Axa Sun Life Services v Campbell Martin The Court of Appeal has held that an entire agreement clause was effective in excluding claims arising out of collateral warranties but was ineffective in respect of claims of misrepresentation and arising out of implied terms. Entire agreement clauses are intended to ensure that the written contract constitutes the whole (or entire) agreement between the parties and to prevent either party from relying on any prior agreements. Such clauses should be considered and drafted carefully to ensure that they have the intended effect. It is not sufficient to rely on boilerplate precedent clauses. A full note on this case can be found on our website.

Restrictive Covenants: George Wimpey Bristol v Gloucestershire Housing Association The Upper Tribunal rejected a developer's application to modify a restrictive covenant partly as a result of the developer's improper conduct in commencing the works in breach of the covenant before making its application. The case follows on from the decision in Heaney (see above), where a Court required the removal of development works carried out in breach of an adjoining owner's right to light.

As in Heaney, developers should take note that pre-action conduct may be taken into account in the determination of claims relating to easements, rights of light and restrictive covenants. A full note on this case can be found on our website.

Rights of Way: Milsum v Gorman

In considering whether the Milsums had acquired a right of way over neighbouring land belonging to the Gormans through 20 years' prior use, the Tribunal examined the impact of an inaccurately recorded boundary.

When the properties at the centre of the dispute were built in 1988, the boundaries were not recorded accurately on the filed plans at the Land Registry. The parties agreed to amend the title plans for both properties in 2004 and the amendment was recorded by the Land Registry. This resulted in the Milsums appearing to have owned the driveway subject to the easement application for part of the 20 year period. As it is not possible to claim an easement over your own land, this could have caused the claim for an easement to fail.

The Tribunal applied the general rule that filed plan boundaries are not definitive of the actual boundary. Therefore the alteration of the filed plans which took place in 2004 did not change the fact that the Milsums had never actually owned the land in question. Accordingly, they could claim an easement over it.

Village Green Registration: BDW Trading (t/a Barratt Homes) v Spooner and Melin Homes

In this case the question arose as to whether the registration as a village green of land previously acquired by the local authority for planning purposes prevented the development of the land by the acquiring authority. Merton Green was validly appropriated by the local council for planning purposes and then sold to Barratt Homes. Later a local action group applied to have the land registered as a village green. An inspector recommended that the land be registered as a village green.

The High Court ruled that a village green registration did not override the developer's right to build on the land. Merton Green had been appropriated by a local authority for planning purposes and so could be used in accordance with planning permission. The subsequent registration as a village green could not affect the construction of houses under the planning permission.

Legislation Update

Bribery Act 2010 – Guidance Released

On 30 March 2011 new Bribery Act guidance was released with an announcement that the Act will come into force on 1 July 2011.

Commercial organisations are concerned with the potential liability introduced by section 7 which provides that an organisation will be guilty of an offence where a person associated with it bribes another person with the intention of obtaining business or an advantage for that organisation. Organisations may have a defence to the offence where they take adequate procedures to prevent associated persons from doing so.

The new guidance sets out six principles that are intended to assist organisations putting in place "adequate procedures" to prevent associated persons from undertaking bribery.

The overall theme of the guidance is common sense and business can take comfort from the core principle of proportionality that has been introduced. The fears of organisations being unduly burdened by the Act have been eased and the SFO has stated that whilst they intend to enforce the Act vigorously they are still "very keen to listen to specific issues that companies have". On implementing the right procedures it should be business as usual for the majority of companies. Further information on the guidance can be found on our website

OFT Launches Guidelines on application of Competition Law to Land Agreements

Up until 6 April 2011, land agreements were specifically excluded from legislation designed to prohibit anticompetitive agreements. However the order granting this exclusion has now been repealed. These changes apply to land agreements which were entered into both before and after 6 April.

A land agreement is an agreement between businesses which alters, creates, transfers or terminates an interest in land. This includes leases, licences and transfers of freehold interests. The parties to such agreements are able to agree restrictions to the way the land may be used or how a right over it may be exercised. A typical example of such a restriction is a user covenant in a lease.

The OFT guidelines explain how these and other restrictions will be assessed. For example user covenants in leases will not normally be seen as anti-competitive. However, they may be anti-competitive where a land owner is active in a related market and seeks to restrict the use of the land for a particular purpose. This is common practice in the retail industry where an anchor tenant may insist on a restrictive covenant or exclusivity arrangement that prevents the shopping centre landlord from granting a lease to a competitor.

If a restriction is found to breach Competition Law, it will be void and unenforceable. This could in turn have implications as to the validity of the land agreement itself. In addition, the OFT have the power to impose financial penalties on all parties to the offending agreement. The OFT Guidelines can be found on their website.

Transaction News

Druces LLP acts for Hugo Boss on acquisition of Moss Bros stores

Druces LLP acted for leading German fashion retailer, Hugo Boss, on its acquisition of its franchised stores and related personnel from Moss Bros plc. Moss Bros plc was represented by Ashurst LLP. The acquisition of 15 retails units throughout England and Scotland, including Regent Street and New Bond Street, brings the number of stores owned and operated by Hugo Boss in the UK to 35.

Commenting on the acquisition Claus-Dietrich Lahrs, the CEO of Hugo Boss, said: "The acquisition of these stores is a central component of our global strategy"

The Druces team was led by Head of Corporate, Toby Stroh, and Property Partner, Graham Atkins, with assistance from Nick Brent, Leah Freeman-Allen, Adrian Footer and Karli Hiscock on property elements, Antony Cotton and Susan Perry on Corporate aspects and Richard Monkcom and Charles Avens on employment matters.

Commenting on the transaction Graham Atkins, Client Partner at Druces for Hugo Boss, said:

"We were delighted to work with Bernd Hake and his colleagues at Hugo Boss UK and the team in Germany in this strategic acquisition. Our versatile team was ideally suited to this transaction, which covered a number of our core areas of expertise."

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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