Author: David Linklater

The recent case of Avocet Industrial Estates LLP vs Merol Limited [2011] EWHC (Ch) has imposed an additional burden on commercial tenants wishing to exercise a break option.

Avocet was a commercial tenant and served a break notice to terminate its lease.

The break right, as is often the case, was conditional and required Avocet to pay all rent and “other sums” due under the lease.  It also had to pay a premium.

The tenant paid the premium by cheque, which was delivered to the landlord one day before the break date.  The tenant had a history of paying rent late and the lease provided that the tenant should pay interest on late payments.
Whilst the landlord had indicated that it wanted interest to be paid, it had not invoiced for interest.  The tenant had dismissed the landlord’s request for interest as “silly”.

The tenant vacated the premises and handed it back on the break date.  The landlord refused to accept that the tenant had validly exercised the break, arguing that the premium was not “paid” when the cheque was received (as it had not cleared), and the interest on late cheque payments should have been paid as well.

The disputed interest was approximately £130.

The Court found that the supply of the cheque meant that the premium had been “paid”, as there was an implied agreement that payment could be made by cheque.

However, interest should have been paid as well and therefore the break notice was ineffective and the lease continued.  This was the case even though the landlord had not invoiced for the interest because the lease stated that interest was “payable” regardless of whether or not a formal demand had been made.

As a result of the failure to pay the £130 interest, the tenant now finds itself in a lease that is does not want, which in theory will result in a liability in excess of £300,000.

The break clause in Avocet was not unusual and the provisions regarding interest are also commonplace.  This scenario will affect tenants who have throughout the course of a tenancy paid any sums by cheque, or been at all late in making any payments to the landlord.

A failure to pay any interest due could therefore potentially invalidate a break.  The key to this is in the wording of the lease and if in doubt, legal advice should be sought.

If you would like more information or advice relating to a specific matter, please do not hesitate to contact David Linklater on 01727 798097 or by email at david.linklater@salaw.com or any member of the Property Litigation Team.

© SA LAW 2012
Every care is taken in the preparation of our articles. However, no responsibility can be accepted to any person who acts on the basis of information contained in them. You are recommended to obtain specific advice in respect of individual case.

Author: Chris Alexander

This is hopefully a statement that the vast majority of us will never have to utter.  However, with the recent spate of civil unrest and several buildings across London ablaze over the last couple of nights, it is worth considering what provision your lease makes in the case of destruction or damage by an insured risk:

1.    Commercial leasehold premises

Every lease will be different but the usual position is that the landlord is responsible for insuring the building against  loss or damage by certain insured risks for its full reinstatement cost.  Fire and civil commotion (which is considered to include riots) are usually insured risks in most leases.

If the building is damaged or destroyed by an insured risk then the usual position is that the tenant should notify the landlord of the damage and the landlord should make a claim on the buildings insurance policy (most policies require notification within a certain period of time or cover can be lost).  The landlord is then usually obliged to apply the insurance monies for the reinstatement or rebuilding of the premises.  However, there are some exceptions to this general position:

a)    where the landlords obligations are conditional upon the tenant paying the insurance rent  and the tenant has failed to make payment;
b)    where the lease gives the landlord a discretion to decide whether to rebuild/reinstate (usually only in cases where it is considered impossible or impractical to do so)

I would also usually expect to see a suspension of rent clause, which will mean that the tenant is not obliged to pay the rent again until the premises are fit for occupation.

However, that said insurers as a general rule exclude riot from their fire damage policies.  It may therefore be the case that the policy in place does not exactly coincide with the landlord’s insurance obligations.  In the case of a claim denied by the insurers this could lead to a dispute between the landlord and tenant (unless the landlord’s obligation to insure is subject to any exclusions, limitations, excesses and conditions that may be imposed by the insurers).

The Riot (Damages) Act 1886 does give a right of action for damage against the police authority in instances of riot (although claims must be delivered within 14 clear days after the day on which the happenings giving rise to them occurred).  This provides alternative recourse for those affected by riot damage.

Finally, the landlord’s insurance covenant will rarely require the landlord to insure against the tenant’s loss of profit for the period for which the premises are beyond use.  Therefore, only tenants who have taken out business interruption insurance will be completely protected.

2.    Residential Long Leases

The position is similar in a residential long leasehold situation, in that the landlord is likely to be obliged to insure and reinstate in the same way.  However, in the event that it is impractical or impossible to repair or rebuild the building, there may be an issue of an insurance shortfall between the reinstatement cost (which is what the insurers would pay out for) and the market value of the leasehold premises (ie what it was purchased for).

Chris advises on litigation and dispute resolution within the property sector, with a particular specialism in ‘real property’ and landlord/tenant matters.

If you would like more information or advice relating to a specific matter, please do not hesitate to contact Chris Alexander on 01727 798000 or by email at chris.alexander@salaw.com.

© SA LAW 2011
Every care is taken in the preparation of our articles. However, no responsibility can be accepted to any person who acts on the basis of information contained in them. You are recommended to obtain specific advice in respect of individual case

Author: Jacqueline Button

Last month I wrote about the Government’s appointment of Mary Portas, the Retail Tsarina, to carry out a review aimed at “halting the decline of the High Street” with particular emphasis on clone towns and vacancy rates. Now the Labour Party have launched a 4 point plan to “put the heart back into Britain’s High Streets”.  The announcement on their website is, unsurprisingly, full of criticism of the “Tory-led Government” and its “VAT hike” but it’s worth looking beyond the party political posturing at their ideas.

Labour begin by stating that 14.6% of retail premises in the UK are currently empty with vacancy rates rising. This is at odds with Colliers International who say that 13.3% of units are empty and vacancy rates are falling. Either way, this is too large a figure and Labour are right to give some thought to the issue.

A 4 point plan sounds brief enough to make an impact but long enough to provide some substantive, practical ideas but in fact, although Labour reel off lots of facts and figures, they give little depth to the plan and no information as to how it would work in practise.

VAT

The first part of the plan is a temporary VAT cut back to the old rate of 17.5%. Labour do not say how temporary this is to be but presumably they are talking about months rather than weeks or years. Last year the British Retail Consortium predicted the VAT increase to 20% would cost 163,000 jobs over 4 years and reduce consumer spending by £3.6 billion over the same period. Apparently the cut, as well as saving jobs and increasing spending, will put £450 back into each family’s pocket. Labour don’t explain how this amount is calculated or point out that in order to make a dent in the £3.6 billion everyone would have to spend their £450 on the High Street and not on the internet or a well-deserved holiday away from economy-induced stress.

The obvious problem with this suggestion is, in a time of tax rises and spending cuts, where is the 2.5% saving to be made? The plan doesn’t deal with that.

DIVERSITY

Jack Dromey MP, the Shadow Local Government Minister, said, “One of the things I hear from my constituents is how the character of the local High Street has changed”. His constituency is in Birmingham but presumably he isn’t referring to the changes brought about by the arrival of Selfridges and the rejuvenation of the Bull Ring which even the most reactionary shopper would see as positive.

Labour say they want to introduce a retail diversity planning clause, putting communities in charge of the future of their local High Streets. They don’t say in which legislation this clause is to go or expand on the rhetoric. Assuming that they mean that every High Street shouldn’t be occupied with the same big brands, this isn’t dissimilar to the coalition’s (that’s the Tory-led coalition, by the way) and Ms Portas’s opposition to Clone Towns.

So how would this diversity clause work? In a shopping centre or a street where there is only one landlord like Marylebone High Street the landlord can (to an extent) control the tenant mix. In most High Streets there are multiple landlords each keen only to let his premises on the best terms. The only way to control the tenant mix would therefore be through planning law operated by local authorities.

In planning terms, retail is currently classified as A1 use. Therefore if a retailer wants to use an office (B1) or a warehouse (B8) for retail use they have to apply to the local authority to change the use of those premises which the authority will either grant or refuse. But if a big retailer wants to use premises previously used by a small retailer no consent is needed. Similarly there is no way under planning law to stop a whole row of pound shops opening up or to prevent one retailer opening multiple units in one street.

Labour’s diversity clause is beginning to look like a whole statute and even when the parliamentary draftsmen’s work is finished the local authorities’ in interpreting the law and processing the applications it generates will have only just begun. Each community will need a street full of stationers to supply the amount of red tape needed to prevent the retailer with the best bargaining position (as opposed to the best fit in the street) moving in.

COMPETITION

Labour’s third prong is to create a “competition test” which would (somehow) lead to “greater choice and lower prices for shoppers” and ensure a “level playing field between small and large shops”.

Again, with no explanation of how this idea will be translated into reality or even what it really means we can only speculate. Labour’s planning statute will have to define a “small shop” and a “large shop” (will this be based on square footage, turnover, profit, number of outlets, number of employees or number of noughts in the chief exec’s salary?) and somehow ensure that a certain percentage of units in a town will be reserved for independent retailers.

The reality of this, of course, is that landlords will be faced with empty shops if the “big shop” quota for their town has been used up or forced to reduce rents to accommodate an independent who cannot pay the market rent. So whilst this may lead to greater choice for shoppers it won’t necessarily lead to lower prices and may lead to financial difficulties for landlords. Hardly a way of injecting new life into the economy.

INNOVATION

Labour’s fourth idea, to enable councils to pursue innovative uses for empty shops such as cultural, community or learning services is their best although it is hardly innovative in itself and is little different than landlords granting leases to charity shops on the basis that at least the rates are covered even if no rent changes hands. However, at least Labour have grasped the concept that an occupied (even if non-trading) unit is better than an empty one and this is certainly an idea which could help some towns where shop vacancies are high and other usable space is in short supply.

The biggest flaw in Labour’s plan is what they don’t cover: town centre car parking charges have, like VAT, been “hiked” whilst most out of town shopping centres provide free parking. Business rates are high and in some places crippling (rates in St Albans are higher per square foot than Oxford Street). Instead of nebulous ideas about diversity and competition these are solid, easy to grasp issues which Labour could have addressed but chose not to.

Since Ms Portas’s appointment the (Tory-led) Government has been quiet on the issues of the High Street, consumed as it has been with other problems. Unfortunately Labour chose a launch date for its plan of 25th July when the news was dominated by the potentially disastrous political games in the US and the tragedy in Norway so their ideas (whilst flawed) have not been as widely publicised as they might have been. The problems of the High Street aren’t as immediate as the phone-hacking scandal or as far-reaching as the US debt crisis but they need addressing quickly and thoroughly. So far, neither the Government nor the Labour Party have been quick or thorough enough.

Author: Chris Alexander

After watching this weeks Dispatches programme on Channel 4 (Landlords from Hell), I thought that it might be useful to summarise a number of the legal issues raised by John Snow in his investigation of the private rental market.

The main issues raised were:

• Unlawful eviction
• Rent Control
• Disrepair
• Overcrowding/HMO’s
• Sale and rent back agreements

I have written an article which you can read by clicking here looking at the various offences that landlords can commit and the private remedies that exist for tenants.

My own view is that the programme recognised that the legal remedies exist to punish rogue landlords but that local housing authorities have been woefully inadequate in prosecuting those offences.  Further, the types of tenant worst affected are those with low incomes with the least practical access to justice especially as legal aid becomes increasingly scarce.

I tend to act more for landlords than for tenants in these cases and anecdotally, many private landlords feel that the balance is stacked too heavily in favour of the tenant, for example it generally takes at least three months to evict a tenant with rent arrears.  My own view is that the private market is not currently well suited to low income or housing benefit tenants who often require greater overall support than most small scale private landlord’s can afford to offer; but Grant Shapps showed little appetite for changing the status quo in his interview.

Click here to read the full  Dispatches Landlords from Hell article.

For further information about our Property Litigation services or to discuss a particular matter or situation in more detail, contact Chris Alexander at our St Albans office by email at chris.alexander@salaw.com or on 01727 798000.

© SA LAW 2011
Every care is taken in the preparation of our articles. However, no responsibility can be accepted to any person who acts on the basis of information contained in them. You are recommended to obtain specific advice in respect of individual cases.

Author: David Linklater

As I have mentioned in a recent blog, break clauses are often tricky to operate and a tenant may have to meet certain conditions in order to ensure that the break option has been validly exercised.

A condition sometimes found in break clauses is that the tenant must on the break date give to the landlord vacant possession of the premises.  Whilst this sounds a simple enough proposition, sometimes tenants do fall foul of this requirement.

The Court of Appeal was called to rule on such a situation in the recent case of NYK Logistics (UK) v Ibrend Estates BV.

The facts of the case are straightforward.  The tenant served a break notice and one of the conditions of the break option was that the landlord was to be given vacant possession on the break date.  The tenant commenced works to put the premises into the condition required by the lease, but as the break date approached, it became apparent that the works would overrun.

At that stage, the tenant entered into discussions with the landlord, seeking permission to remain in occupation until the works were completed, without prejudicing the break right.  No agreement to that effect was reached.  On and after the break date, the tenant remained in occupation of the premises, still had keys and had security guards in place, and had not cleared the premises of its belongings.

The tenant believed that the lease ended on the break date, claiming that by entering into negotiations with the tenant, the landlord had waived the requirement for vacant possession.  The landlord stated that it was never its intention to waive the requirement.

The case served as a useful reminder of the questions that the Court will ask when considering compliance:

•    Was the party that was required to give vacant possession still actually using the premises for it own purposes?

•    Is the physical condition of the premises in such a state that there is no substantial impediment to use of the premises, or a substantial part of it, by the party taking the premises?

The Court of Appeal found that the tenant had taken no steps to comply with the first point above.  The second point is rarely problematic and certainly wasn’t in this case, as physical impediments have to be onerous to the extreme in order to cause a tenant to fail that test.

The Court also found that there was no evidence of waiver.  Waiver is a very difficult concept to prove and really should only be used as a last resort, rather than something to be relied on prior to an event.

This judgment reiterates the importance of taking legal advice prior to exercising any break option and highlights the need to seek clarification on any points of ambiguity.  Conditions must be strictly adhered to and landlords (and the Court) are unlikely to assist a tenant that falls foul of those conditions.

For further information about our Property Litigation services or to discuss a particular matter or situation in more detail, contact David Linklater at our St Albans office by email at david.linklater@salaw.com or on 01727 798000.

© SA LAW 2011

Every care is taken in the preparation of our articles. However, no responsibility can be accepted to any person who acts on the basis of information contained in them. You are recommended to obtain specific advice in respect of individual cases.

Author: Lynsey Newman

Landlords could be seeking to reclaim millions as a result of the recent ruling in Office of Fair Trading v Foxtons [2009]. Charges which are unfair and that are hidden away in the small print of terms and conditions could leave letting agents open to claims from landlords seeking to recover historic fees.

Foxtons’ standard terms which included charging commission at 11% for tenancy renewals and 2.5% when tenants went on to buy the property even where Foxtons had little or no involvement in the process where held to be unfair by the High Court. The Court ruled that to be fair contracts should be clear and the language used should be plain and intelligible. Important terms should be brought to the attention of the customer, as a typical customer would not expect such important terms to be hidden away in the small print.

This landmark decision serves as a warning to letting agents as to the enforceability of their terms of business and charging structure and the importance of highlighting these to their customers.

Please click here to read an article which explores the ruling in the case and provides practical advice for compliance with the Foxtons decision.

The British Retail Consortium has led a long-running campaign to encourage landlords to switch from quarterly to monthly rental terms, arguing that quarterly rents cause major cash flow difficulties for retailers. The BRC has predicted today’s demands would mean “the toughest quarterly rent payments day for at least 18 years as … hard-pressed retailers face rent bills totalling hundreds of millions of pounds”.

Meanwhile restructuring experts have warned that the quarterly rent bill could be the tipping point that would force a significant number of retailers into administration.

Terence Ritchie offers some top tips to landlords and tenants.

Please click here to read this article.