Author Archive for Francis Davey

What is a service charge?

Published
by
Francis Davey
on 26/07/2010
in Leasehold and shared ownership and Uncategorized
. 1 Comment

In two joined appeals to the Lands Chamber of the Upper Tribunal brought by Southern Housing Group Ltd and Family Housing Association (Wales) Ltd ([2010] UKUT 237 (LC) – not yet available via the tribunal’s website or on bailii), the tribunal considered whether, on construction of the relevant leases, a payment was a service charge within the meaning of s18 of the Landlord and Tenant Act 1985. In both cases the LVT had held that the charge was a service charge (in favour of the tenant).

As readers will know, if a charge is a s18 service charge, then numerous provisions intended to protect tenants will bite, including the requirement that any such charge is reasonable (in s19 of the Act) but s18 does not cover all charges that are payable by a tenant to a landlord, it provides:

(1) In the following provisions of this Act “service charge” means an amount payable by a tenant of a dwelling as part of or in addition to the rent—
(a) which is payable, directly or indirectly, for services, repairs, maintenance or insurance or the landlord’s costs of management, and
(b) the whole or part of which varies or may vary according to the relevant costs.

In the Welsh case clause 1.1 of the tenant’s lease stated:

You agree to pay the following charges to the Association weekly in advance at the commencement and throughout the period of the tenancy subject to 1.2 below.

There then followed a table of charges, one entry of which was headed “Service Charges” against a value of £8.27. Clause 1.6 allowed the landlord to vary the service charge once every six months by giving 4 weeks written notice to the tenant.

So far then the charge appears to be one that is set by the landlord, rather than varying with costs incurred by the landlord.

In Home Group Ltd v Lewis (LRX/176/2006) the Lands Tribunal had considered a lease where the tenant’s payment for service charges could be varied in this way. In practice the level of charges was set based on the actual costs incurred, subject to consultation with the tenants, but there was no requirement in the lease that it should be set in that way.
Judge Huskinson held that such a charge was not a “service charge” within the meaning of s18. Home Group Ltd was followed by the Lands Tribunal in Chand v Calmore Area Housing Ltd (LRX/170/2007).

The landlords’ appeals were made on the ground, relying on those earlier authorities, that the charges did not vary with the relevant costs and so were not service charges.

Unfortunately for the landlord in the Welsh case, its lease also stated (at clause 1.8) that:

The Association will seek to recover through Service Charges only its actual expenditure incurred in providing services, equipment and furniture plus an administration fee. Where services are provided to a number of premises the Association may apportion the charge.

That was, in the Upper Tribunal’s view, fatal to the landlord’s case. Clause 1.8 limits what the landlord may recover as a service charge. S.18(1)(b) only requires that a service charge “may” vary with the relevant costs so the fact that the landlord need not increase the service charge if there were an increase in costs is irrelevant since it might do so. Home Group and Chand were quite different cases because in those cases the lease did not contain any particular provision as to how the rent or service charge would be calculated.

Southern Housing’s case was, if anything, worse since, in addition to a detailed explanation of how the service charge might be calculated (relative to costs incurred) the lease stated:

Our service charges are subject to the provisions of the Landlord and Tenant Act 1985 (as amended from time to time)…

Followed by some more detail about consultation and tenant’s rights. Moral: if you don’t want legislative provisions to apply to your lease – don’t say they do.

I cannot say I am entirely surprised about the outcome of the case, but it is interesting in that it emphasizes the importance of the word “may” in s18(1)(b).

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Civil Procedure Rules: 51st update

Published
by
Francis Davey
on 31/03/2010
in Uncategorized
. 0 Comments

Spring is in the air and daffodils are blossoming which is usually a sign that an update to the civil procedure rules is in the offing. This year, we are doubly blessed. Parts of both the 51st and52nd updates will come into force over the next week. In this post I will, as usual, focus on changes that are most likely to affect housing practitioners.

Civil procedure watchers will already be aware of the 51st update, which gave brought into force provisions related to the Lugano Convention on enforcement of judgment are already in force in January this year, and February amendments to Part 52 concerning asylum appeals.

The remaining provisions of the 51st update will give us:

  • a new “electronic working scheme” in PD 5C which promises a reduction in the use of dead trees to communicate with the court us;
  • changes in timescales for filing documents before telephone applications
  • updates to the costs practice direction, including the recognition of email as a form of letter
  • the Court of Appeal will get a Master (so it doesn’t feel left out that the High Court has lots) and possibly one or more deputies
  • lots and lots of tidying up.

All of these are due in force on the 6th April, except for the electronic working scheme which starts tomorrow (1st April).

Electronic working

The electronic working scheme is too complex to describe here and at first will only apply to certain kinds of proceedings, namely “the Admiralty, Commercial and London Mercantile Courts, the Technology and Construction Court, and the Chancery Division of the High Court at the Royal Courts of Justice, including in the case of the Chancery Division the Patents Court and the Bankruptcy and Companies courts”. It is certainly worth watching as I am sure the scheme will extend.

It permits most of the steps taken in proceedings, pre-trial, to be taken electronically and allows parties access to the court file in the same way. I look forward to seeing this rolled out to county courts so that the judge has a chance of finding all the papers that have been filed. We’ll see.

Telephone hearings

Where an application is to be determined at a telephone hearing, the application notice must be served 5 days before the hearing, not 3 as at present (PD23A new rule 4.1A). Where that application is on the multi-track a case summary and draft order must be filed no later than 4pm, 2 days prior to he hearing, not on the previous working day as at present. The same time limit applies to documents on which a party intends to rely and to the case summary and draft order where the court has directed that they be filed prior to the hearing.

Costs of email

The Costs Practice Direction now allows emails to be considered in the same way as letters so that “letters out” will include “emails out”. The court is also allowed, in its discretion, to allow solicitors to charge for time spent in the preparation of other electronic communications, provided they properly amount to attendances and the time is recorded. Those of us who spend a lot of our time using a variety of internet tools to communicate with clients will be pleased. There are some more minor changes which those drafting costs bills might like to peruse (for example the disbursement limit in paragraph 32.3 is now £500 not £250).

Tidying up

Notice I referred to PD32A? Thought I had made a mistake? No. The major tidy up is that where there is a PD5B there will also be a PD5A. Practice directions will be numbered more logically. There’s also rather more use of the singular they; further use of helpful cross-referencing and a lot of minor tidying up. It always pleases me that whoever does keep the rules up to date has a neat and tidy mind.

52nd update

But lo! Even before the 51st update had finished taking effect, a 52nd is upon us, coming into effect tomorrow (1st April). Most of it concerns local value personal injury claims in road traffic accidents – important if you are PI practitioner but not for us. The other change is that all references to RSL’s become references to PRPSH‘s.

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Total confusion from Willesden

Published
by
Francis Davey
on 26/03/2010
in Uncategorized
. 3 Comments

Chasewood Park Residents Ltd v Kim [2010] EWHC 579 (Ch) is a rent/service charges case that should serve as a useful object lesson: first for parties to remind them of the importance of precise pleading and the use of evidence; and second, I hope, to first instance judges as to the perils of abandoning the normal formalities of a trial.

Mr and Mrs Kim are tenants under a long lease of Chasewood. Chasewood, a company set up by the then residents’ association of which the Kims were members, had acquired the interest of the previous landlord in 2007.

The claims

Chasewood made two claims: for arrears of ground rent (£50 per annum) and failure to pay service charges. There appears to have been a fairly messy procedural history, including a failed application by Chasewood for summary judgment, which resulted in both parties relying on re-amended statements of case.

The Kims defended the rent claim on the ground that Chasewood were estopped by virtue of the following statement made by the residents’ association in a newsletter in 2006:

“Dear Chasewood Resident,

As many of you already know, from the previous two Residents’ Meetings, your Committee has been keen to pursue the acquisition of the Freehold of Chasewood Park.

The benefits of owning the freehold can be summarised as follows:

…

no ground rent to pay (currently £100 per annum per flat)

…

If we do manage to acquire the freehold, those owners that have not participated will continue to pay ground rent to a Company formed to acquire the freehold. …”

and that further communications from Chasewood (once it had come into existence) adopted this representation.

Chasewood’s reply was that (i) they had not made the statement; and (ii) the Kims had not in fact relied on it and so estoppel was not made out.

The Kims defended the service charge claim on the basis that they were not reasonable, complaining of “poor service” and also of a failure of Chasewood to permit Mrs Kim from examining any documents that would confirm the basis on which the service charges were levied. Several specific incidents, such as damage to the Kims’ car because of an installation for which Chasewood was responsible were cited in support.

Unfortunately the Kims’ defence was not well pleaded and included the allegation that the service charges “are not reasonable service charges within the meaning of section 27A of the Landlord and Tenant Act 1985″. Alas section 27A gives the LVT jurisdiction to determine the payability of service charges, and has nothing to do with reasonableness, for which see section 19. In my view it was self-evident what was intended.

Chasewood replied:

“17. The reference in paragraph 13 to the Defendants’ disputing whether the service charges are reasonable ‘within the meaning of section 27A of the Landlord and Tenant Act 1985 makes no sense: section 27A is a jurisdictional provision concerning the leasehold valuation tribunal, not a substantive provision dealing with reasonableness of service charges. The Claimant assumes that the defendants intended to refer to section 19(1)(a) of the said Act …

18. In these circumstances the Claimant hereby gives notice that unless its solicitors hear to the contrary within 7 days of the service on the Defendants of this Reply and Defence to Counterclaim, it will assume that the Defendants put it to proof as to the reasonableness of each and every element of the service charge claimed in this action. The claimant will prepare its evidence on this basis and if it is successful in the claim and gets an order for costs such costs will include the cost of this exercise.”

To which the Kims offered no further response.

Despite this rather robust reply, it appears not to have occurred to Chasewood that any evidence concerning the service charges might be relevant. In disclosure only the financial statements, and not any of the supporting documents, were listed. The Kims, despite their pleadings concerning this very point, made no application for specific disclosure.

Worse, Chasewood’s only witness statement dealt with service charges like this:

“… we have not received any complaints from other residents.

In our normal duties as managers, we always where necessary obtain estimates or tenders for our services provided.

We always try to ensure that we get the best possible value for money and that we spend no more than is reasonably required to do things which the claimant is required as landlords do. I am confident that we have achieved this objective.

We have many times offered Miss Kim to come into our office to examine our books. She has never replied to these invitations.”

Quite why Chasewood thought that a bland and general denial to a specifically pleaded case against them was adequate beats me. It is certainly one of the most ineffectual witness statements I have seen in such a case.

Lastly the Kims counterclaimed for misrepresentation and breach of contract, the latter being based on the same incidents as the service charges claim.

In Willesden County Court

Chasewood’s rather laid back attitude to evidence and pleading was clearly well founded. The case, though listed for four hours on the fast track, came on well into the afternoon. Rather than adjourn, HHJ Copley proceeded to decide the case, or at least some of it, though exactly how he did so is, like much else, unclear.

Instead of hearing evidence and submissions from counsel, the judge held what was described by the Kims’ counsel as a “colloquy” with the trainee solicitor representing the Kims, at the end of which he held that there was nothing in the Kims’ defence and gave judgment for Chasewood on the claim. The counterclaim appears not to have been addressed at all.

No formal judgment was given and the reasons for the judge’s decision and even its jurisdictional basis, were and are unclear.

Sanity in the High Court

On appeal to the High Court, Arnold J did a great deal to put matters right, in a clear and sensible judgment.

First he found that the judge’s reasons were sufficiently unclear that he would be unable to review them and so the matter would have to be remitted for retrial, unless it was clear that the judge had reached the right conclusion.

The parties agreed that what the judge had done was to strike out the Kims’ defence under CPR 3.4(2)(a) – that the statement of case disclosed no reasonable grounds for defending. This was, as Arnold J put it, an attempt to rationalise what the judge had done.

The two issues in the rent claim were (i) whether, as a matter of construction, the documents were sufficient to show that Chasewood had adopted the representation on which the estoppel was said to be based; and (ii) whether there had been reliance by the Kims. Arnold J thought that (i) was “well arguable”, although it would require consideration of the factual matrix, and that (ii) was a plain issue of fact and not something that could be dealt with on a strike-out.

A nugget of really interesting thought was raised by the Kims, who came up with a new ground of defence. A tenant under a long lease is not liable to pay rent unless they had received a notice pursuant to section 166 of the Commonhold and Leasehold Reform Act 2002. On the evidence it would appear that they had not. Arnold J held that “it is for the landlord claiming unpaid ground rent under a long lease to plead and prove compliance with section 166″. Whether or not he would have allowed this fresh point to be raised on appeal was irrelevant because the matter was being remitted for trial anyway.

As a result of Chasewood’s statement in reply, Arnold J found that it was common ground between the parties that Chasewood was put to proof of each item of service charge expenditure claimed. There were disputes of fact which were unresolved between the parties and the only proper way to deal with those was at trial.

It is also possible that a section 20 consultation was not properly carried out, but that was of course immaterial to the appeal once it had got this far.

Moral

The result of the case, so far, is that the parties have spent lots of money, lawyers have earned lots of the same and little real progress has been made. Why is this? It seems to me that:

  • Judges should be very wary of departing from normal trial procedure especially a case which involves relatively complicated statutory provisions as any leasehold case does. Formality is there for a reason. While it is possible to be overly pedantic about rules, the opposite approach can be equally disastrous. Nothing excuses the kind of mess the parties were forced to suffer in Willesden County Court.
  • Leasehold law is, regrettably, complicated and therefore care in pleading a claim or defence is a vital part of success. Any competent advisor should have checked whether s.166 was complied with at the very start. Neither party’s lawyers seem to have done so until the matter went to appeal. The same remark goes, in spades, to compliance with section 20. If you are involved (as a party, lawyer or judge) in such a case the very first thing you should be asking (after reading the lease and establishing the relationship of the parties) is whether statutory formalities apply and have been complied with.
  • Evidence, and particularly documentary evidence, matter a great deal in service charge cases. Both sides appear not to have been sufficiently focussed on the evidence and its availability. If you are involved, getting the evidence right can be the difference between success and failure.

All these points should go without saying, sadly it appears they do need to be restated.

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I’ll get you, my pretty, and your little dog, too!

Published
by
Francis Davey
on 17/03/2010
in Possession and Uncategorized
. 0 Comments

Joseph v Nettleton Road Housing Co-Operative Ltd [2010] EWCA Civ 228 is a decision that was decided on its facts, but since it is the first example of a claim for judicial review against a housing co-operative, I took an interest.

The facts are that Mr Joseph was a tenant of Nettleton Road Housing association. Nettleton Road Housing is a fully mutual housing co-operative. This means that its tenants can be neither secure, assured or (for those in residence for a long time) protected by the Rent Acts. The thinking being that a co-op, being run by its members, can be relied on to act fairly towards the generality of its tenants. Mr Joseph therefore had no security of tenure.

Under his tenancy agreement, clause 12.1 permitted the association to end the tenancy by 4 weeks’ notice, but by clause 12.2 agreed only to do so if the tenant had committed a breach of the agreement; the Management Committee had given the tenant notice of the breach and a period of time in which to remedy it and the tenant had failed to do so.

One term of the agreement was that no tenant would keep any pet without prior agreement. Mr Joseph had kept a Doberman from 1985 until 1996 with permission. In August 2007 he started keeping a Staffordshire bull terrier.

At a general meeting of the association on 9th September 2007 a complaint was raised about Mr Joseph keeping a dog and it was resolved that he would be given two weeks’ notice to rehome it. Notice was given to Mr Joseph on 25th September giving him 14 days to rehome the dog. Mr Joseph did not do so. At the next general meeting, on 15th October 2007 it was resolved that a meeting should be held to discuss taking the next step, which might involve expelling Mr Joseph.

At the general meeting on 11th November 2007 — the first at which Mr Joseph had been present — a letter from Mr Joseph’s solicitors was discussed. Amongst other things it complained that Mr Joseph had been unreasonably singled out and treated less favourably than other members of the co-op who had been allowed to keep pets. The meeting was unimpressed: pointing out that the pets in question were not dogs, and having heard complaints concerning the dog’s behaviour, decided to serve a notice to quit on Mr Joseph.

The notice was served on 13th November, on 26th November Mr Joseph formally asked permission to keep the dog, but this was refused by the Vice-Chair of the association. At the January meeting Mr Joseph said, for the first time, that he was keeping the dog for a friend who was ill and would be returning it to him when he had recovered. This news was treated with some scepticism by the meeting and it was decided to bring possession proceedings.

Mr Joseph ran the following lines of defence:

  • (relying on the association being a public body) eviction was in breach of his rights under article 8 ECHR and was disproportionate in the circumstances
  • the legislative scheme covering fully mutual housing associations was incompatible with article 8 ECHR
  • there should be implied into his tenancy agreement implied terms to the effect that a tenant will be given reasonable time to remedy any breach of covenant and that a notice to quit will only be served in circumstances which are sufficiently serious to justify eviction.

The last point was countered by the association who relied on Prudential Assurance Company Limited v London Residuary Body[1992] 2 AC 386 in which Lord Templeman said “A term must either be certain or uncertain. It cannot be partly certain because the tenant can determine it at any time and partly uncertain because the landlord cannot determine it for an uncertain period. If the landlord does not grant and the tenant does not take a certain term the grant does not create a lease.”

The judge agreed and found that clause 12 and the implied terms contended for by Mr Joseph were all void for that reason – otherwise Mr Joseph’s tenancy would be of uncertain duration, an impossibility in English law.

On appeal, Mr Joseph accepted that the association were not a public body, so his appeal was confined to the second two points, which were combined by his counsel in the following way: the statutory scheme of the Housing Act 1988 removed any statutory security of tenure from Mr Joseph, the operation of the rule in Prudential would prevent the operation of terms like clause 12, leaving Mr Joseph in a precarious position. In consequence the 1988 Act must, in order to be consistent with the Human Rights Act 1998 be read as preventing the operation of the rule in Prudential in such cases, so that clause 12 (and the relevant implied terms) would be operative.

The Court of Appeal thought this was all very interesting and important, but did not want to decide such serious questions when they did not have to. The Court considered that Mr Joseph’s breach of his tenancy agreement was, in the circumstances, serious and that he had been given ample time to remedy it, or at least to put forward to a time scale for remedy which he had not done. So that even if Mr Joseph did succeed on all his arguments, he was bound to lose on the facts.

So, all very interesting, but nothing decided. It seems to me that co-operatives can be public bodies but need not be. For example, the percentage of tenants nominated to a co-op varies, in my experience, from zero to 100% and the extent of public funding varies in the same way. So Mr Josephs’ concession on appeal seems correct.

We shall have to wait for another case to answer some of the more interesting questions asked in this one. My colleague NL invented (with characteristic wit) the title for this post, I merely wrote it.

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Adverse Possession of a Highway II

Published
by
Francis Davey
on 12/03/2010
in Adverse possession and Uncategorized
. 5 Comments

Last year we reported the decision R (Smith) v Land Registry [2009] EWHC 328 (Admin) in which the High Court held (amongst other things) that it was impossible to acquire land by adverse possession if that land was subject to a public highway. At the time I expressed my concern about the soundness of that conclusion and so it is rather pleasing to find that on appeal in R (Smith) v Land Registry [2010] EWCA Civ 200, the Court Appeal agree with me.

To recap: the claimant lives in a caravan on land to the North of road which is a part of the public highway, even though it is not itself metaled. He claims that, by adverse possession, he is entitled to have his title to the land registered.

My view was that this was bound to fail because: (i) a highway cannot be extinguished by adverse possession (the “once a highway, always a highway” point); and (ii) section 263 of the Highways Act 1980 vests the surface of any highway maintainable at public expense (as this one was) in the local authority. The same analysis was applied by Elias LJ and Mummery LJ in the Court of Appeal. Orthodoxy, in my view anyway, is restored.

I had also doubted whether a statement by Mummery LJ in the earlier case of London Borough of Bromley v. Morritt [1999] EWCA Civ 1631 that property could not be acquired by adverse possession over land subject to a public right of way could be correct. Mummery LJ helpfully clear this up:

In the court below, counsel for the Land Registry cited a passage from London Borough of Bromley v. Morritt [1999] EWCA Civ 1631 in which, without any display of law, I said-

“As a matter of law, an adverse possession or squatter’s title cannot be acquired to land over which a public right of way exists.”

In that case the court had not had the benefit of clear legal submissions on the point — in particular the appellant was a litigant in person —. I think that “without any display of law” is a very neat and gracious way of the judge to put it.

My last post on this subject generated a lot of feedback – ranging from those who equated adverse possession with theft, to those who felt the court ought to have made the doctrine more expansive. I should make it clear that I am not unsympathetic to Mr Smith’s plight. Successive governments have passed laws making it increasingly difficult for people, especially Romani Gypsies, to exist in England and Wales lawfully, without providing them with any alternatives. That, on any analysis, seems irrational (since the alternative may be to house them using public funds which as readers know is not in generous supply) and unfair.

What seems to be the problem here is s.263 of the Highways Act 1980. Earlier acts, up to section 29 of the Local Government Act 1929, vested not the whole highway but the “road” in the local authority. While “road” did include the footway beside the road, it did not include roadside wastes such as Mr Smith inhabits (Curtis v Kesteven County Council (1890) 45 Ch D 504) and it might be useful — for legal certainty if nothing else — if that were still the situation. For some reason the drafters of the 1980 Act decided to extend the vesting to the whole of the highway beyond merely the road.

The court did not consider the “illegality” argument which had been put forward by the Council at first instance, namely that because Mr Smith’s occupation of his property was illegal, he could not thereby gain adverse possession of it.

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Adverse possession of the river bed II

Published
by
Francis Davey
on 04/02/2010
in Adverse possession and Uncategorized
. 16 Comments

Port of London Authority v Ashmore [2010] EWCA Civ 30 is a really odd decision by the Court of Appeal to the extent I had to read it through carefully twice to be sure I understood its effect. I am still not sure that I do.

You may remember that we reported on Mr Ashmore’s attempts to resists the Port of London Authority’s attempts to register their ownership of the bed of the River Thames on the ground that he had acquired title to it (well a part of it) by adverse possession where the judge at first instance found that he had established factual possession and an intention to possess.

Unfortunately that decision was taken by the judge the hearing of a preliminary issue. The order for a trial of a preliminary issue was made by consent. The issue being:

Whether it is possible for the owner of a vessel that is moored in a particular place on a tidal river or other area of tidal water to acquire title by adverse possession to the sea or river bed or the foreshore for the footprint of that vessel where:

(a) the title to the sea or river bed or the foreshore has not been registered; and

(b) the vessel rests on the bed or the foreshore at low tide.

An agreed statement of assumed facts for the preliminary issue only was agreed and submitted to the judge.

Here things start to get odd. At the trial of the preliminary issue the Port of London conceded that title to the bed of a tidal river can (in principle at least) be acquired by adverse possession. That would seem, almost, to be a concession that the preliminary issue should be found in Mr Ashmore’s favour (indeed it would cease to be an issue). While it might be possible to find some very narrow difference between the preliminary issue as stated and the authority’s concession, they do not appear to have taken that position. As far as I can tell (and I am happy to be corrected) the authority agreed with the proposition to be tried, so the preliminary hearing would seem to be pointless.

Not to be deterred by this, the parties argued whether Mr Ashmore had in fact (based on the agreed assumed facts) established both factual possession and an intention to possess. The points taken are dealt with in my earlier post. Having found for Mr Ashmore on this issue, the judge was bound to answer the preliminary question in the affirmative. If, on the assumed facts, Mr Ashmore had established adverse possession, then it was clearly possible for someone to do that in principle because the judge found that someone had. The judge’s order included the following statement:

1. It is possible for the owner of a vessel that is moored in a particular place on a tidal river to acquire title by adverse possession to the river bed or the foreshore for the footprint of that vessel where:

(a) the title to the river bed or the foreshore has not been registered; and

(b) the vessel rests on the bed or the foreshore at low tide.

This isn’t quite the same wording as that used in the original order since it omits the phrase “or other area of tidal water”. But, strictly speaking, the judge’s narrower statement implies the more general one: if A is possible then surely one of A or B is possible.

The Port of London Authority decided to appeal this decision. Why they should do so given that they appear to accept the point in issue I do not know. They were given permission. At the hearing, counsel for the Port of London Authority explained that the authority conceded that there could be circumstances in which the owner of a vessel moored on a tidal river might acquire title by adverse possession to a part of the river bed or foreshore. What he wanted the Court of Appeal to do was to indicate in its judgment what circumstances those might be.

He suggested the following:

(1) An owner of a vessel that is moored on or over the bed of tidal waters will only be capable of being in adverse possession of the bed by reason only of that mooring if he can prove that it would not have been possible for the vessel to float off at Mean High Water if released from its moorings.

(2) An owner of a vessel that is moored on or over the bed of non-tidal waters will only be capable of being in adverse possession of the bed by reason only of that mooring if he can prove that it would not have been possible for the vessel to float off if released from its moorings where the waters were at their average depth during the preceding calendar year.

(3) The principles set out above do not prevent the owner of the vessel from showing by other acts that he was in possession of the land upon or over which the vessel was moored or which included such land.

Unsurprisingly the court refused to make a judgment in those terms. First because it did not think it appropriate to set down an arbitrary test for the acquiring of adverse possession to the river bed and second because principles (1) and (2) could not be applied to the case before it since the agreed statement of assumed facts did not give sufficient information to decide whether they did or did not apply.

For myself I would have refused the appeal on the basis that the order made by the judge on a preliminary issue had been conceded by the appellant. End of story.

Perhaps because of the peculiar nature of the case before it, the court decided it needed to do some peculiar reasoning as well.  The court discerned in the trial judge’s decision a qualification to the declaration he made, namely that it was not intended by the judge to be made in general terms, but was confined to the agreed statement of assumed facts. The court appears to have thought it should not have been made in the general terms it was.

With the greatest respect to the Court of Appeal, who must have struggled with the peculiar way the case was presented before them, that must be a nonsense. If on specific facts a judge finds that X is the case, then it must be true as a completely general proposition that it is possible for X to be the case. The judge’s decision cannot be faulted for its generality which follows inevitably for his finding on the facts before him and the question he was asked to resolve.

The court decided that there was no useful purpose in deciding whether the judge’s decision on the facts before him was right. The court also felt that it could not, in allowing the appeal, qualify the order that the judge made by confining it to the agreed statement of assumed facts. There was nothing for it but to set aside that part (paragraph 1) of the judge’s order. Unfortunately there is no report of the rest of the order, so it is impossible for us to see what state the case is left in. Very nearly back to square one by the sounds of it.

Can anyone throw any light on how this muddle came about, or why the Court of Appeal felt compelled to make the very odd decision that they did?

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Sale and leaseback – a transaction at an undervalue?

Published
by
Francis Davey
on 13/01/2010
in Assured Shorthold tenancy, Housing law - All, Leasehold and shared ownership and assured-tenancy
. 2 Comments

Could the sale and leaseback of a house be a transaction at an undervalue and thus be caught by section 423 of the Insolvency Act 1986? This was the main question considered by the High Court in Delaney v Chen although some other points of interest were discussed.

The background is that the respondents to the appeal – known as “the victims” through the report – had successfully sued a Mrs Chiu and Mr Ding and obtained not only judgment but a respectable costs order. £30,000 of costs was paid, by order, out of money held in court, but on 7th May 2008 an interim order for the payment of a further £30,000 costs was made along with an interim charging order against Chiu and Ding’s home.

Meanwhile Mr Ding was obviously alive to his family’s situation with a large costs order in the offing. He took steps to sell the house as he explained “the sale was done with the best interest of my family retain a roof over their heads and to reduce my debts and outgoings it was not to cheat anyone or deprive any creditors”.

The plan was that the home would be sold for £210,000 to the Mr Delaney, the appellant a property investor and long-time acquaintance of the family, who would lease back the property to Chiu and Ding. Slightly unusually the leaseback happened first. A tenancy for 21 years plus one day was granted on 1st May to commence on the dame day, 8th May 2008 the the transfer of the home would take place.

We are told that the interim charging order had not been drawn up immediately and so could of course not have protected the respondents against the sale of the home.

The respondents solution to this was to make an application for the court to exercise its powers under s.423. on the grounds that the sale and leaseback was a transaction at an undervalue. The District Judge agreed with them and made an ordered that Mr Delaney transfer the home back to the sellers, subject to a charge in his favour for the sum of £160,435.15, the value of a mortgage which had been discharged on the sale of the home.

One of the aims the court strives for in making an order under s.423 is “restoring the position to what it would have been if the transaction had not been entered into”, which was plainly not satisfied, Mr Delaney being out of pocket over £100,000.

The decision that the transaction was at an undervalue seems to have been made on the following basis. The evidence of Mr Delaney’s valuer was accepted without objection. It put the value an unencumbered freehold of the home at £275,000. The judge found that since the tenancy was not assignable it had no value in money or money’s worth and therefore that the transaction had taken place at an undervalue of £65,000.

Clearly from Mr Delaney’s perspective there was a great deal of difference between the unencumbered freehold and one subject to a tenancy for a fixed term of 21 years. At first sight it would seem self-evident that the judge’s reasoning was plainly wrong.

There was unfortunately no direct evidence as to the value of the freehold reversion as against the freehold. The figure given by Mr Delaney’s valuer was £115,000 but on the 16th September 2008 (the wrong date) and even then purely on the basis of the property as a source of revenue, not taking into account the very real possibility of the tenancy ending early. Even so this would indicate, and the High Court accepted, that the valuation of reversion was considerably less than £275,000 and the judge found that £210,000 was a fair value for the reversion.

On appeal the victims argued on the authority of In re MC Bacon Ltd (No 1) [1990] BCLC 324 that the correct perspective for assessing whether a transaction was made at an undervalue was the seller’s not the buyer’s. Before the transaction the seller had a freehold worth £275,000 afterward they had £210,000 in cash (part of which discharged the mortgage of course) and a tenancy worth nothing.

While it is not always true that there is a perfect symmetry in such matters, if I own an asset which is worth a great deal to someone else, I can usually realise that value so it is not worthless to me. So it was, found the High Court, with Chiu and Ding in particular they could have surrendered the tenancy for payment, so that the tenancy must have had a value of £65,000 – a figure that Mr Delaney or another property developer would have paid for it.

The appeal was allowed.

Two points that don’t seem to have been raised spring to mind. First the fact that there was no provision for rent review seems to have been relied on by the district judge. We aren’t told what the lease did say, but if it was merely silent on rent review, then s.13 of the Housing Act 1988 gives the landlord and mechanism for keeping the rent in step with the market.

Second, surely Messrs Chiu and Ding now have a property which they can turn back into a freehold at a later date by exercising a right of enfranchisement under the Leasehold Reform Act 1967, now that the low rent test has been abolished? Or is there some arcane twist in the 1967 Act I have missed (the power to terminate on death perhaps)?

Despite those queries, it does seem a commonsense result. It is also a reminder that just because something is a long lease doesn’t mean it can’t also be an assured shorthold tenancy. Alarming but true.

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Service charges up, enfranchisement down: some LVT statistics

Published
by
Francis Davey
on 27/12/2009
in Housing law - All and Leasehold and shared ownership
. 0 Comments

As food for reader’s thought as 2009 draws to an end, a quick comment on a recent written answer given to the Shadow Housing minister Grant Shapps. Since many readers’ will be full of seasonal fare I thought some pictures rather than words would be more apt.

Graph of leasehold business in the LVT

Our first picture shows a turnaround in the core leasehold work carried out by the LVT with enfranchisement and lease extension applications down and service charge disputes up. The fall in old LVT work probably stems from the collapse in the housing market and poor availability of credit. I would like to think that better publicity of the service charge jurisdiction has pushed s.27A applications higher, but that may also be due to increasing financial straights in which leaseholders find themselves and a concomitant reluctance to pay anything that is not strictly required.

Graph of market and fair rent applications to the LVT

Our second chart (to the same scale) shows that fair rents determinations still outnumber those for market rents despite the diminishing number of rent act protected tenancies. Even I, well known as a specialist in the odd and obscure, do not see many cases involving such tenancies any more. Despite an overall decline in the number of fair rent cases over 4 years, both series are up on last year. Perhaps also an indication that people fight harder for their money when there is less of it about.

The other jurisdictions carried out by the residential property tribunal service’s tribunals are miniscule by comparison. Even Housing Act 2004 work, which has shown a steady rise, amounts to less than 3% of all cases.

Happy 2010.

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A strange new beast in the forest

Published
by
Francis Davey
on 09/12/2009
in Housing law - All and Trusts and Estoppel
. 2 Comments

The case of Clarence House v National Westminster Bank [2009] EWCA Civ 1311 deals with a relatively new form of transaction that seems, at present, to be confined to City property transactions. I report it here because it may become more widespread.

This new beast is the virtual assignment. The idea is a simple one: a tenant, usually one who is also a landlord of sub-tenants, by a contract assigns all the economic rights and obligations of their lease to a third party, without actually assigning the lease itself. Most modern commercial leases prohibit (at least without consent) the assignment of the lease; parting with or sharing possession or a declaration of trust of the lease in favour of someone else. A virtual assignment is designed to side-step these prohibitions.

This is what National Westminster Bank had agreed with a Gibraltarian company New Liberty Property Holdings Ltd, their lease having the usual assortment of prohibitions against assignment etc.

Clarence House was rather unhappy about this, as Ward LJ put it:

Who was this unforthcoming Gibraltarian company who had been foist upon it without its knowledge or consent in place of its approved tenant, a copper-bottomed high street bank? The respondent made plain how unhappy it was dealing with the interloper, especially in the light of the disconcerting fact that since its involvement, the rent was in arrears. Their concerns could not be assuaged. Their concerns were not without foundation. We have now been informed that on 28th October Provisional Liquidators of New Liberty were appointed.

They applied to the High Court for a declaration that the virtual assignment was a breach of the terms of the lease as being a parting with or sharing of possession or a declaration of trust. The judge found for National Westminster, the Court of Appeal dismissed Clarence House’s appeal.

Clearly National Wesminster were not in literal possession of the premises (it was sublet) and so could neither share possession nor part with it, but landlord and tenant lawyers use the term “possession” more broadly. In particular s.205(1)(xix) of the Law of Property Act 1925 defines possession to include “receipt of rents and profits or the right to receive the same, if any”.

The Court rejected the suggestion that New Liberty were in receipt of rents for two reasons: the first was that they received the rents as agents of the landlord and, although they immediately became the property of New Liberty (as a result of the virtual assignment) there was an instant of time when they were not. I confess I am unhappy with an argument based on a scintilla temporis. Much better, in my view, was the second reason which was that it is entirely possible to assign the chose in action representing the right to receive rents while retaining the reversion: it is the latter, not the former, on which s.205(1)(xix) bites and which represent possession in the technical legal meaning of the word. Thus New Liberty were never in possession and so possession could not have been shared with or given to them.

The Court also took the view that a virtual assignment is not a trust. Ward LJ puts it thus:

I recognise that Virtual Assignments are strange new beasts in the forest; that one must circle around them suspiciously and cautiously; but the moment one gets close and has a good sniff, the overwhelming smell is of contract, not trust. Although the judge would not for a moment have expressed himself in such an inelegant way, so lacking jurisprudential precision, this was the central finding on this point and he was correct in that conclusion.

That must, I think, be right.

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Chancery or Family? – the former matrimonial home

Published
by
Francis Davey
on 09/12/2009
in Housing law - All and Trusts and Estoppel
. 0 Comments

In Smith v Smith the Court of Appeal considered the conflict between TOLATA and its family law jurisdiction.

The background is a sad one. The Smiths married in 2004. They bought what I assume to be a lovely house of 3,800 square feet in 5 floors and with substantial gardens both front and back for a total of £6 million. They spent another £7.4 million on “elaborate works of renovation” (with contributions of £1.5 million from Mr Smith and £0.4 million from Mrs Smith, the rest being funded by a mortgage). Mrs Smith directed the works and “her energy and flair were major contributors to its ultimate style and beauty”.

In April 2007 they moved into the house, but their marriage had already hit difficulties and Mr Smith eventually moved out of the home for good in January 2008 — they had lived together in the home for only 6 months.

Mr Smith continued to pay the outgoings on the house which amounted, he said, to some £228,000 a year. In addition he had annual outgoings of £18,000 (an allowance paid to his wife), £100,000 (rent on his own home) and obvious other living expenses (I suppose one is expected to think this leaves little change out of his net income of £350,000 per year — readers with social housing practices may think otherwise).

Mr Smith petitioned for divorce in May 2008, Mrs Smith answered in July 2008, indicating her intention to resist her husband’s petition. Mr Smith’s solicitors pressed Mrs Smith concerning the house, telling her that a sale was both urgent and inevitable. Mrs Smith disagreed.

In October 2008 Mr Smith applied for an order under s.14 of the Trusts of Land and Appointment of Trustees Act. He also applied for an order for a sale of the family home under s.17 of the Women’s Property Act 1882 and for an occupation order prohibiting Mrs Smith to exercise her right to occupy the home under s.33(3)(d) of the Family Law Act 1996.

Just before the hearing Mr Smith was paid an exceptional commission of £720,000 (net) on a corporate deal that had been made in March 2009. This rather put the Kaibosh on the case that he had advanced, namely that he could barely afford to maintain the family home (with other outgoings) on his income. At the hearing he described the commission as a “once-in-a-lifetime payment” and argued that although he could, in the short term, afford to maintain the property, it was unreasonable to expect him to do so.

Mrs Smith argued that the application was premature given the pending matrimonial proceedings.

The recorder held that:

  • the home was “far larger than could objectively be justified by reference to [Mrs Smith's] reasonable housing need”
  • the purpose for which the property was acquired was to provide a home for both of them while they lived together and that purpose could no longer be achieved

He ordered that the home be sold with completion no earlier than 3 months from his order. The net proceeds of sale were then to be divided into two sums and placed on deposit pending agreement between the parties or an order of the court.

In the matrimonial proceedings, the judge found that Mrs Smith had behaved in such a way that the husband could not reasonably be expected to live with her and their marriage had broken down irretrievably. He therefore granted a decree nisi.

On appeal Mrs Smith argued that:

  • the order for sale was premature in advance of a decree of divorce
  • in particular the substantial and exceptional payment to the husband (so that he no longer needed to sell the home urgently) meant that the TOLATA application should not have been heard in advance of the divorce
  • finding that the purpose for which the home had been acquired was now defeated, effectively pre-empted the inquiry as to whether the marriage had irretrievably broken down that was to be decided in matrimonial proceedings
  • as a general rule TOLATA was an inappropriate vehicle for the resolution of issues between husband and wife.

Wilson LJ set out the approach a court should take to an application under TOLATA between separated spouses. As a general rule it is better if questions of shared property are dealt with as part of divorce proceedings:

It is in principle much more desirable that an issue, as here, about sale of the home should be resolved within an application for ancillary relief. For there the court will undertake a holistic examination of all aspects of the parties’ finances, needs, contributions etc; will devise the fairest set of arrangements for the future housing and finances of each of them; and, to that end, will provide for the transfer of capital, as well perhaps as for payment of future income, from one to the other. By an order under TOLATA, on the other hand, the court lays down only one piece of the jigsaw, namely that the home be sold, without its being able to survey the whole picture by laying down the others.

So a court faced with such an application should carry out a threshold enquiry, asking itself whether the issues raised by the application could reasonable be left to be resolved within an application for ancillary relief following divorce. In doing so the court will have regard to whether (within a time-frame “tolerable in all the circumstances) the parties will become able to apply for ancillary relief.

Further the court should consider whether there is a “measurable chance” that on such an application for ancillary relief one of the parties might preserve their occupation of the home or secure an outright transfer of ownership (or a variation of the trust). If so, an order for sale under TOLATA is unlikely to be right.

Wilson LJ found on the facts that the delay before ancillary relief was not tolerable and that there was no measurable chance that Mrs Smith would retain occupation of the home or otherwise preserve her right to live there. The recorder’s decision was therefore correct.

A second point raised by Mrs Smith at first instance was that before making a TOLATA order in her circumstances, the recorder would have to be satisfied that it would have been appropriate to make an occupation order. The recorder disagreed, but found that the requirements for such an order were satisfied. The Court of Appeal agreed.

One point that surprised Wilson LJ, but which had not been addressed by either party in proceedings, was the nature of the recorder’s order. Where was Mrs Smith supposed to live after sale while the proceeds of sale were languishing in a deposit account pending a judicial determination or an agreement. That would be a circumstance that should be taken into account under s.15(2) of TOLATA. He said:

One might wonder whether such a strategy would be likely to prove as satisfactory for the wife as a submission to the recorder that no order under TOLATA should be made until the husband had made satisfactory proposals for these two allied aspects of her needs. But, although had I been in the recorder’s shoes, I would myself have invited submissions in these respects, he cannot fairly be criticised for not having done so and thus for not having in any way addressed the wife’s needs following sale.

A point to consider in the face of a similar TOLATA application in future.

An interesting and important case for those dealing with matrimonial home disputes. TOLATA may be an alternative to waiting for ancillary relief to be resolved.

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