UK: Case Law Compendium

Last Updated: 11 April 2013
Article by Richard Flenley

The last few months have been particularly active in the property litigation sector.

It will come as no surprise for many to realise that the bulk of that activity has focussed heavily (although not exclusively) on the struggles faced both by individual business and the wider economy at large.

First in our tour of the recent cases features the aged old issue of the exercise of break options and the need to proceed with great caution when considering the exercise of such a right.

In HFI Farnborough Limited -v- Park Garage Group (2012), HFI were the owners of 4 petrol service stations. 25 year leases of these petrol stations had been granted to Park Garage Group Plc ("Park Group"). Separate overage agreements were also entered in respect of each lease. Each lease contained break options permitting HFI to terminate on 3 month's notice. The conditions of the break options were, amongst other things:

(i) that HFI could exercise the break option only if the "value of the Premises" on the date the break option was exercised exceeded the price HFI had paid for the freehold of the relevant site with vacant possession,

(ii) if the break options were exercised, HFI was required to pay overage to Park Group on completion of a sale of the petrol stations.

In April 2012, HFI served break notices on Park Garage accompanied by letters from a valuer alleging that the value of the petrol stations exceeded the prices referred to in the leases. HFI denied that it was obliged to sell the petrol stations in order exercise the break option. Park Garage claimed that the break notices were invalid and HFI brought proceedings claiming possession of the petrol stations.

The issues that arose for the High Court were whether:

  • HFI was permitted to exercise the break option if there was no agreed sale of the petrol stations; and
  • if HFI were entitled, should the leases should be rectified for mutual mistake.

The High Court ruled that the break conditions were linked and the break option could only be exercised on a sale. A reasonable person would understand that the term "value of the property" would mean the new price of the petrol stations with vacant possession. It was unlikely that the parties intended that there should be both a sale of the petrol stations and a valuation of the properties. As the Court held that HFI were not entitled to exercise the break options issues of rectification did not arise.

However, the Court did make obiter comments that a party seeking rectification for mutual mistake had to demonstrate a common continuing intention. Evidence of subjective intention was admissible and could be relevant where agreements had been based on oral exchanges/conduct.

Next we come to the Court of Appeal decision in John Grimes Partnership v Gubbins (2013).

This case revisited the issue of remoteness in the context of a fall in property values. G obtained planning for development of a field for residential premises and instructed JGP to design a road. JGP did not complete in the time agreed and G claimed for damages. G was successful in claiming that the delay resulted in a reduction of the market value of the private residences to be built, a reduction in an offer from a Housing Authority and an increase in building costs.

The Court of Appeal held that losses caused by a breach of contract and arising out of a fall in property values were not too remote and the fall in property prices at the start of the recession were "reasonably foreseeable".

In these times of increasing financial pressure on landlords and tenants alike, it is common for parties to seek to take advantage of alienation rights. This marks the next stop and was central to the case of Ansa Logistics Ltd -v- Towerbeg Ltd (2012).

In that case, Towerbeg let 42 acres of land in Liverpool to Ansa Logistics under two long leases. The leases contained a covenant "Not to assign, underlet or part with possession of the demised premises or any part thereof without the previous consent in writing of the [landlord] which consent shall not be unreasonably witheld".

Ansa used the site to store and marshal vehicles for Ford.

In August 2007, Ansa and Ford agreed heads of terms that allowed an "orderly transition" of Ansa's business to Ford, allowing Ford to take over the operations on the site. Ford occupied the site under licence agreements, paid a monthly facility fee and took on responsibility for some of the utilities. By November 2009, all Ansa employees had left the site however, Ansa continued to pay rates, insure the land and took the lead in rent renewal negotiations.

In April 2011, Towerbeg applied for planning permission to redevelop part of the land as a leisure park.

In November 2011 Ansa and Ford agreed on the grant of under-leases subject to Towerbeg's consent. However, Towerbeg refused consent stating that Ansa was in breach of the leases by parting with possession of the site to Ford, expressed concerns about Ford's financial stability and indicated that its application for planning permission would be prejudiced if Ford became under-tenant. Towerbeg also served a forfeiture notice on Ansa.

Ansa duly took the matter to the Court and the Court held that for the purposes of an alienation covenant, parting with possession had to be complete. Possession and occupation were two separate legal concepts. The acid test for possession, as opposed to mere occupation lay in the right of the person in occupation to exclude all others, including the tenant from the premises. In the present case, although Ford had exercised an increasing degree of control over the site since head of terms were agreed, Ansa had not been excluded from the site. Both Ansa and Ford recognised that their relationship had not changed since head of terms were agreed. Whilst Ford had the right to call for an under-lease, this made it clear that it had no right of possession. Further, Towerbeg did not have good reason to believe that Ansa had parted possession with the site. All that was evident was that Ford had occupational control of its business on the site.

The Court also ruled that landlords cannot refuse consent for an under-lease because the under-tenant is not bullet proof. Even if there had been a breach then the Court would have granted relief from forfeiture because if there had been a parting of possession, it was to a well established company which would be carrying on the same business at the site.

Accordingly, Towerbeg's consent to under-lease to Ford had been unreasonably withheld.

Moving on to the issue of insolvent tenants next and the case of RVB Investments Limited v Alastair Roderick Bibby (2013).

In that case, a corporate landlord of business premises (RVB) suffered the problem of an insolvent tenant.

Thankfully for the landlord, there was a valid surety for the now insolvent tenant and the landlord therefore attempted to rely on its underlying right to require the surety (Bibby) to complete a lease for the residue of the term. The landlord also sought to claim a reviewed rent from the surety as well as a payment in respect of the rates liability.

The surety refused and also argued that (i) as the rent review procedures in the lease had not been followed, the landlord could not claim an increase rent in any event and (ii) that a notice under section 17 of the Landlord and Tenant (Covenants) Act 1995 ("the 1995 Act") was needed in order for the landlord to be able to enforce the liabilities contended for.

The matter went to Court and it was determined as follows:

1 - The Landlord was entitled to an order for specific performance requiring its insolvent tenant's surety to execute and complete a new lease for the residue of the term;

2 - No notice under section 17 of the 1995 Act was needed to enforce such a liability and the surety would be liable for all rates liabilities accrued; and

3 - The landlord could not, however, charge a higher rent, as it had not followed the procedures in the lease for rent review. Finally, we end with the decision in Alan Wilkinson and 7 others -v- Kerdene Limited (2013).

In that case the principle that a positive covenant does not run with land when it is sold was revisited. As we are all aware, such a covenant can only be enforced against a successor in title by express agreement or if it falls within the "benefit and burden" principle established in Halsall -v- Brizell [1957] 1 Ch 169 namely that a party may not take the benefit of a covenant without also accepting the corresponding burden. In that case, the question to be decided was whether the owner of a holiday village was entitled to enforce positive covenants against bungalow owners in the village regarding the cost of maintaining the communal parts of the village (i.e. the roads, car parks and recreational facilities).

At first instance it was held that Kerdene could enforce payment from the bungalow owners on the basis that the obligation to pay correlated with the right to use the access road.

The bungalow owners appealed on the basis that they considered the payment obligations to attach to the repairing covenant rather than the rights of access and to use the facilities.

The Court of Appeal disagreed however and considered that, whilst some of the bungalow owners were successors in title to the covenants, the payments were related to the rights granted in their favour (i.e. the use of the communal facilities) which they continued to exercise. Although the continued exercise of those rights was not made expressly conditional upon payment, the payment was intended to ensure that they remained capable of being exercised. Indeed, the payment, at least in substantial part, was intended to provide a contribution to the cost of maintaining the roads and other facilities over which the owners of the bungalows were granted rights. Further, the covenant, by the original site owner, to carry out the repairs was not sufficient to sever any link between the payment covenant and the rights enjoyed by the bungalow owners. Therefore the first instance decision was upheld and the payment obligations continued.

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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Richard Flenley
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