UK: News Update, Winter 2000 - Property Law

Last Updated: 23 March 2000

RECOVERABILITY OF OVERPAYMENTS OF RENT

There have been significant changes in the law relating to the recovery of overpayments, in particular rent under a tenancy agreement.

Following a rent review, a number of payments of rent had been made at too high a level and the tenant asked for repayment (please see endnote 21). Of the 10 payments the tenant paid the first five in ignorance that the rent was higher than the landlord's entitlement. With the sixth he knew it was too high but thought it would be recoverable and the final four had been paid after landlord had agreed that the payments were so high.

Until recently the law had been complicated by the fact that where overpayment had been made under a mistake in law, i.e. based on a misunderstanding of what the law was, it was not recoverable whereas it may be reclaimed when paid under a mistake of fact. However, fortunately for the tenant, a case recently decided by the House of Lords abolished this distinction at a stroke thus making all the above overpayments recoverable.

Points to watch: This is clearly an important case which will affect any situation where payments or overpayments had been made under a mistake of law or fact. However, time is running, so that any tenants who wish to instruct their legal advisers to conduct a review of payments made in the past must do so before limitation expires.

Contact name: Andrew Beck

TENANCY OR LICENCE?

There may well be circumstances where a dispute arises as to the precise nature upon which commercial premises are let, particularly as a tenant has extensive rights under landlord and tenant legislation. What constitutes a tenancy?

The precarious position of the licensee relative to that of a tenant can lead to disputes as to the nature of occupation - for instance serviced offices are commonly expressed to be occupied only on a licence basis. In a recent case (please see endnote 22) it was acknowledged that the 'hallmarks' of a tenancy were:

  • occupation for a set term
  • periodic payments
  • exclusive possession

However, the Court decided that these factors were not conclusive as was previously commonly considered. The judge stressed that in reaching any such decision all relevant factors including the understanding of the parties had to be taken into account.

Contact name: John Kelsall

Current Landlord & Tenant Act 1954 applications may lapse in 2000

Background

Business tenants should be aware that the automatic stay of dormant cases on the 26 April 2000, introduced by the Civil Procedure Rules 1998 (CPR) could endanger their Landlord & Tenant Act (Act) rights.

There are a great number of lease renewal proceedings issued prior to the CPR when the almost universal practice was for the court to adjourn hearings to 'a date to be fixed' while the landlord and tenant negotiated the new terms of the tenancy. Only if negotiations broke down would either the landlord or the tenant apply for a hearing. These existing cases are now governed by the transitional provisions of the CPR.

The Transitional Provisions

Part 51 of the CPR sets out the transitional provisions. The transitional provisions do not apply to cases commenced after the 26 April 1999. The CPR will only apply to existing cases when they first come before a judge (whether at a hearing or on paper) and if an existing case has not come before a judge by 26 April 2000, the proceedings will be stayed.

The glossary to the CPR defines 'stay' as:

"A stay imposes a halt on proceedings, apart from taking any steps allowed by the rules of the terms of the stay. Proceedings can be continued if a stay is lifted".

CPR Part 51 Practice Direction 19 provides that any party to the proceedings may apply for the stay to be lifted.

Continuation of Tenancies under the Act

Section 64 of the Act provides that the continuation of the tenancy, protected by the Act, expires 3 months after the date on which the tenant's court proceedings are finally disposed of. The Act itself has not been amended by the Woolf reforms. Therefore pre-April 1999 case law of the Act is still a good precedent:

Re: 20 Exchange Street (please see endnote 23), held that the final disposal of the case had not taken place on the date on which the Court of Appeal refused to grant leave to appeal, but on the date on which the time for lodging a petition to the House of Lords for leave to appeal expired. Therefore a case is only 'final disposed of' when there is no possibility of it being resuscitated.

Existing cases which are stayed under Part 51 can be resurrected by an application and therefore it is highly unlikely that the court will regard the automatic stay as the final disposition of the tenant's proceedings.

The Application to Lift the Stay

There is no guidance in the CPR as to the grounds that the applicant must satisfy on an application to lift the stay. However, it is probable that the application to lift the stay will need to be supported by evidence and will not be 'rubber stamped' by the court.

There is no guarantee that every application to lift a stay will be successful and such an application may lead to renewal proceedings being struck out. If the renewal proceedings are struck out and no appeal is lodged, then the continuation of the tenancy under the Act will come to an end 3 months after the last day for appealing the Striking Out Order.

Points to Watch: There are two safe courses of action in relation to existing cases. Firstly the tenant could conclude its negotiations with the landlord and complete a new lease before 26 April 2000. Secondly, the tenant could apply for a hearing to be listed before 26 April 2000, so that the proceedings are governed by the CPR. Business tenants should be aware that there are likely to be a number of similar applications listed before 26 April 2000 and therefore applications should be made well before the deadline.

Contact name: Andrew Beck

Shortfall Debt Recovery - When is it too late for lenders to sue for mortgage shortfalls?

Background

When a mortgage company repossesses a property, which is then sold, it can sue its former borrower to recover any shortfall. Lenders have assumed they have 12 years to commence proceedings. However, on 30 January 1997 Lord Justice Auld in the Court of Appeal gave a judgment in the case of Hopkinson v Tupper (please see endnote 24) where he indicated that the limitation period is in fact 6 years.

Limitation Act 1980

Section 20 Limitation Act 1980 (Act) gives a 12 year limitation period in respect of money secured by a mortgage or other charge. This is reinforced by Section 8 which states that an action upon a Specialty (eg a Deed) would also have a 12 year limitation period. Until the decision of Lord Justice Auld it was therefore felt that a 12 year limitation period would apply to mortgage shortfall cases.

Whilst the Court of Appeal did not give a definitive determination that the limitation period was 6 years, it did state that the point was 'seriously arguable'. The key element in the decision, from which all else flows is:

"in my judgment, it is seriously arguable that where a mortgagee has repossessed and has sold the security and is seeking to recover the shortfall, his claim is in simple contract whatever the nature of the instrument under which the debt was initially secured".

Section 5 of the 1980 Act sets out a 6 year limitation period for actions based on contract. In the view of Lord Justice Auld Section 20 did not apply because it spoke in terms of 'money secured on a property'; but that would not be relevant if the property had already been sold. In those circumstances, the mortgagees' claim would be a simple contract debt and a 6 year period would apply.

The non-application of Section 8 of the Act is the weak link in Lord Justice Auld's reasoning. There are a multitude of cases where simple contract debts and specialty debts have been viewed as very different and separate entities.

However, whatever the merits of the decision, we do have a situation in which the Court of Appeal is now saying that it is 'seriously arguable' that a 6 year limitation period applies in such cases.

When does the limitation period start to run?

The limitation period can be restarted by an acknowledgement or part payment by the debtor (section 29). Accordingly, if the debtor acknowledges his debt and his legal liability to pay it the limitation period will start to run again from the date of such admission. This should be borne in mind when making initial contact with a borrower in relation to a shortfall.

Points to Watch: The argument in Hopkinson needs to be applied to the specific drafting of each particular lending arrangement. There is a clear distinction between a situation on the one hand where the lending arrangement is set out in a letter and the mortgage is simply security, and on the other hand where the lending arrangement and the security all form part of one integral document by deed. Each case will need to be considered on the basis of the proper construction of the particular lending documentation.

Whether the decision will be followed is not clear. However in the event that the decision is followed a comprehensive review of all potential claims is now required in order to avoid claims being statute barred in the future.

Contact name: Andrew Beck

Walker Morris Client Newsletters can serve only to alert the reader to recent developments and to act as a preliminary, but no comprehensive guide. They should not therefore be relied upon in place of specific advice.

ENDNOTES:

  1. Nurdin & Peacock Plc v DB Ramsden & Co Ltd (No. 2): 1999 NPC 17
  2. Mehta v Royal Bank of Scotland plc and others: Times 25 January 1999
  3. Re:20 Exchange Street Manchester [1956] 3 All ER 490
  4. Hopkinson v Tupper CA 30 January 1997 CL June 1997

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