Property Law Case - Assignment Example

?Commercial Property Law I. Introduction Leasehold contract creates an enforceable right between the landlord and the tenant. The obligations of the landlord are statutorily imposed however there is no proscription if more rights are conferred upon the tenant. The reciprocal rights and obligations demanded from the tenant on the other are not only contained in legislative enactments but find its roots and evolution from common law principles and jurisprudence as well. In leasehold agreements, the landlord transfers the juridical title to the property thus possession of the property or object subject of the leasehold is enjoyed by the tenant either by actual or physical occupation or exercise of dominion over the property or object. It must be understood however that the ownership over the property or object is not conveyed to the tenant but merely the right of possession which is separate and distinct from ownership. The leasehold contract whether a written or oral agreement, gives rise to demandable rights such as but not limited to delivery of the property or object in good tenantable condition for the purpose it is intended, quiet (Jenkins v. Jackson) and peaceful possession and abatement of any disturbance or intrusion to the enjoyment (Kenny v. Preen) of the property or object and payment and review of rental. Thus, any material violation shall be construed as a breach of contract which ripens to a right to rescind the contract, demand specific performance or restitution by way of damages. In this jurisdiction, lease contracts may be written or oral agreements however it is more legally feasible and expedient to reduce the terms and conditions into writing as it is difficult to prove and substantiate oral agreements. This is appropriate for contracts affecting land, residential or commercial tenancy. It cannot be denied that some of the most contentious issues concerning tenancy relations are payment delays or worse, non-payment, negotiation whether to reduce or increase rental fees pursuant to an acceleration or deceleration clause, extent of repairs or maintenance liability, discriminatory conduct committed by the landlord, fixing of the period and renewal of lease. As a result thereof, it is imperative that the responsibilities and other stipulations binding to the landlord and tenant are specified and delineated in a contract to safeguard their respective rights and avoid any protracted or tedious litigation. Disputes shall nonetheless be resolved and dispensed with by the courts in accordance with the facts and evidence adduced as the arbiter on how the law should be interpreted and applied. II. Factual Antecedents Before any suit is lodged in the courts, it may be prudent for the parties to discuss and resolve the matter amicably. It may be gleaned that it is in this context that Tomes Limited, a bookshop entity, has sought opinion whether its position against the claims of the landlord is justifiable and equitable. According to the landlord, Tomes is liable to repair and reinforce the structural damage to the joist caused by the weight of the books stacked on the bookshelves and to submit to a rent review. Tomes strongly disagrees and in support of its opposition asserts that the reinforcement work is not cosmetic in nature thus not within the purview of the repairing covenant. The structural engineer commissioned by the landlord even affirmed that the joists may not have been permanently damaged and for this, Tomes insists that any repair or reinforcement must be done for the sole account of the landlord. On the other hand, the rent review is no longer possible as the period has elapsed which should have been exercised on the fifth, tenth and fifteenth years of the twenty-five year contract which commenced on 1 April 1997. It is likewise stipulated that the break clause may be carried out by the tenant only on the sixteenth year by giving notice on the first six months of the fifteenth year of the term. Tomes likewise invoked the Landlord and Tenancy Act of 1954 to govern its leasehold relationship and further stated that pursuant to the contract, the repair covenant supports its position—“the tenant hereby covenants during the currency of this Lease, the Tenant shall put and keep the premises in tenantable repair to include the decorations, wall-surfaces, window frames, glazing, and casements.” Accordingly, the works demanded to reinforce the structure is no longer cosmetic thus Tomes cannot be held liable. So also, Tomes intimated that it intends to diversify its business by adding an internet cafe which would entail the removal of most of the shelving which would ease the load. Tomes opined that the removal of the shelving absolves it from repairing the damaged joist. Tomes further stated that the landlord is ill-motivated as it intends to operate a similar business in the demised premises on account that the landlord recently acquired the controlling share in a specialized bookstore, Volumes Limited, which needs a new retail premises. III. Issue Based on the foregoing factual disquisition, the principal question submitted for consideration is--whether the refusal of the Tomes to undergo rent review and to make the structural repair or reinforcement tenable? And, the corollary question—whether the grounds invoked by the landlord sufficient to terminate the leasehold contract and in the alternative, can the landlord make use of the break clause to end the leasehold contract? IV. Discussion A review of the positions proffered by the landlord vis-a-vis Tomes’, the contention of Tomes is deemed more judicious and reasonable as hereunder discussed. As explicitly provided under the leasehold contract, rent review may be undertaken every five years reckoned from 1997 thus the first rent review should have been made in 2002 while the second rent review was supposed to have done in 2007 but the landlord failed to promptly commence the rental review on the specified periods. Therefore landlord is deemed to have waived the right to conduct rental review during these periods and can only exercise the option again at the end of the fifteenth year or in 2012 pursuant to the leasehold contract. It is observed that although leasehold contract specified the period within which rent review should be conducted, there is no provision that that “time is of the essence”. This presupposes that the time element should be liberally construed and that failure to exercise should not be considered a waiver of such right—this is the essence of equity as enunciated in the case of Riverside Housing Association Limited v. White (FC) and another (FC). However, in the instant case, the landlord failed to exercise his right not days or months thereafter but years thus any right accruing to him is deemed lost or abandoned due to inaction. Laches had therefore set in and the innocent party, Tomes, cannot be forced to submit to the will of the landlord to its prejudice. So also, to allow the landlord to a flexible review date or shifting review date as he chooses would seem pretty penal and following the rising market forces, the landlord could just delay the review date to take advantage of the change in values and the tenant could do nothing about it as stated in United Scientific Holdings Ltd v. Burnley Borough Council. Equity and fairness likewise require that notwithstanding the omission of the phrase “time is of the essence”, the landlord should lose no time to initiate the rent review. Although the time had passed for rental reviews to be initiated, the parties are not precluded from negotiating for an equitable and mutually acceptable amount so as to prevent a sudden escalation in rental fee considering that the contract is silent on the basis for rental increase. In such instance, the rental increase shall be based either on the current open market or a retail price index. Normally, the imposable rental shall be equal or follow to the prevailing rental rate of similarly situated properties. The assessment and evaluation process of the rental increase should nonetheless be done by an independent third party who possesses the technical knowledge and skills to produce an impartial and objective report. This option is not however ideal for Tomes since the landlord unconscionably caused the delay and slept on his right thus he cannot force Tomes to negotiate for a rental increase in the interim. Even assuming that the escalation of the rental fee on the fifteenth year would be substantial, it is still more economical and practical from the business standpoint to defer the review rather to accede to the immediate imposition of rental increase as it entails additional expenditure on the part of Tomes. It must be stressed that the landlord and the tenant had agreed to a fixed term and even specifying therein the time upon which rent review may be put into action thus it must be respected. The rationale for the review period is to afford the parties a more stable tenancy relationship considering that the issue of rental increase is often volatile subject. And, more often than not, it is the tenant who is at the disadvantage and subject to the whim of the landlord. In this instance, the landlord seeks to implement a rental increase way beyond the review period which is prejudicial to Tomes cause and transgresses its right to due process. The landlord has to wait for the appropriate time to initiate the rental review through a timely trigger notice. It is further recommended that the process be commenced upon due notice with the assessment or valuation of an independent surveyor mutually acceptable and should the parties disagree on the findings, the parties must submit to arbitration to settle the matter without however prejudice to court adjudication in cases of grave abuse of discretion or patently erroneous disposition. It is likewise recommended that a provision for discount or diminution of rental should be laid down taking into account the depreciation of the building, amenities and other similar grounds. However the recent ruling of the House of Lords in Idealview Ltd. vs. Bello [2009] EWHC 2808 (QB), must be taken into consideration as well. It was ruled in this case that mere delay will not prevent a landlord from triggering a rent review even when the delay is more than a decade. However, this where the parallelism ends as it was discovered that Bello did not pay the rental due since 1994. Neither did he participate in the arbitration proceedings nor did he raise the issue of delay. Thus he himself was barred from raising the defence of delay. The import of this case therefore relates to the continuation of the payment of rental notwithstanding the on-going rental review dispute between the landlord and the tenant. The more controversial issue between the landlord and Tomes is—on whose account shall the reinforcement or repair in the joists be charged? It is not disputed that the joists form part of the structure thus any repair needed should be for the account of the landlord. However, it is argued that the damage was triggered by the heavy load of the books. It is safe to assume that the landlord was notified when the bookshelves were installed and he was made aware of the nature of the business being put up in his townhouse then the landlord should have communicated his objection to its installation. Again, having failed to act, he is deemed to have accepted that the bookshelves are mere improvement necessary for the business of Tomes and therefore any repair or reinforcement required should be for the landlord’s sole account and expense. When Tomes instituted the improvement, it is presumed that the served a notice to the landlord of his intention to install the bookshelves consistent with the nature of its business together with the plans and specifications. Since the landlord did not timely object to the installation then he is deemed to have approved and accepted the proposed improvement. And, if the installation of the bookshelves was in accordance with plans and specifications as reviewed, certified and approved by the tribunal then the bookshelves, including its weight and bulk is suitable and appropriate to the existing structure. As a matter of fact, there is no evidence that the tribunal modified or disallowed the installation. Thus, it is safe to conclude the structure could carry the added load of the bookshelves and books. Any defect or damage which occurs after the installation cannot be charged for the account of Tomes as the damage is structural and not merely cosmetic in nature. It cannot be over-emphasized that it is the responsibility of the landlord to repair and maintain the edifice while tenants are generally accountable for internal repairs and maintenance. Tomes under the leasehold contract is obligated to “put and keep the premises in tenantable repair to include the decorations, wall-surfaces, window frames, glazing and casements” and the landlord is responsible to maintain the structural integrity of the building. The normal wear and tear of the demised premises and its restoration to its original state is chargeable to Tomes but the repair and reinforcement of the structure falls under the responsibility of the landlord. The recent act of the landlord in holding Tomes liable for the structural damage as well as belatedly enforcing the rent review cannot be reasonable grounds to constitute the termination of the leasehold contract. In fact, these acts can be construed as harassment as the landlord deviously asserts rights which have been abandoned and neglected. The grounds relied upon by the landlord are unfair thus cannot be validated or enforced against Tomes. The tenure of the tenant to use the demised premises is nonetheless not perpetual. The landlord may, after sufficient notice, interrupt the peaceful possession of the demised premises and to re-claim it for his personal use. However this is availing only for residential leases thus any move to evict Tomes from the demised premises anchored on this ground would not be legally feasible as well. Another issue which must be addressed is the break clause which is exercisable by the tenant alone on the period specified however this is subject to mandatory compliance of the covenant. The recent rulings of the House of Lords emphasized that substantial compliance of the performance of the tenant’s obligation is not acceptable. The tenants must comply with the conditions imposed by the landlords that may include repairs to the demised property, payment of all rent and other similar charges up to the time the break clause is implemented. It is therefore mandatory that the tenant show faithful compliance with all his obligations, otherwise the break clause may not be given effect or worse, the tenant may end up in a far difficult situation than before requesting the break due to the charges levied by the landlord. However, the case of Fitzroy House Epworth Street (No.1) Ltd. & anor. vs. Financial Times Ltd., may be relevant to state as the House of Lords issued the yardstick in determining material breach to deny the leasehold break. It was held that material breach occurs when the landlord's ability to have the premises sold, leased or rented again is affected. If, on the other hand, the landlord can have the premises rented or sold after it is vacated then it is accepted that there is material compliance to the covenants. In the case of Fitzroy, it was declared that the tenant’s substantial compliance is reasonable considering that the demands of the landlord are quite trivial compared to the works implemented by the tenant. Thus, it was held that the tenant had the right to operate the break clause. By virtue of the Fitzroy case, courts are now given standards to determine whether the tenant has demonstrated material compliance with lease covenants which warrants the exercise of a break clause. Courts cannot issue sweeping judgment that the tenant did not comply with the covenants without considering the circumstances as a whole. References Amherst v. Walker [1983] 1 Ch 305, Court of Appeals. European Union. Principles of European Contract Law. 1998. [online] Available from http://www.cisg.law.pace.edu/cisg/text/textef.html [Accessed 4 March 2011] Fitzroy House Epworth Street (No.1) Ltd. & anor. vs. Financial Times Ltd. [2006] EWCA Civ 329. [online] Available from http://www.bailii.org/ew/cases/EWCA/Civ/2006/329.html [Accessed 4 March 2011] Idealview Ltd. v. Bello [2009] EWHC 2808 Jenkins v. Jackson (1888) 40 Ch.D. 71, 74 Kenny v. Preen [1963] 1 Q.B. 499, 511 [online] Available from http://members.fortunecity.com/bprendergast/kenny_v_preen.htm [Accessed 4 March 2011] London Borough of Southwark and Another v. Mills and Others (A.P.) Baxter (A.P.) v. Mayor etc. of the London Borough of Camden, 21 October 1999 [online] Available from http://www.publications.parliament.uk/pa/ld199899/ldjudgmt/jd991021/mills-1.htm [Accessed 4 March 2011] Riverside Housing Association Limited v. White (FC) and another (FC) [2007] UKHL 20. [online] Available from http://www.publications.parliament.uk/pa/ld200607/ldjudgmt/jd070425/river-1.htm [Accessed 4 March 2011] United Kingdom. The Landlord and Tenant Act 1927. 1927 c. 36 17 and 18 Geo 5. [online] Available from http://www.legislation.gov.uk/ukpga/Geo5/17-18/36 [Accessed 4 March 2011] United Kingdom. The Landlord and Tenact Act 1954. 1954 c.56 2 and 3 Eliz 2. [online] Available from http://www.legislation.gov.uk/ukpga/Eliz2/2-3/56 [Accessed 4 March 2011] United Kingdom. The Landlord and Tenact Act 1985. 1985 c.70. [online] Available from http://www.legislation.gov.uk/ukpga/1985/70/crossheading/repairing-obligations [Accessed 4 March 2011] United Kingdom. Office of the Deputy Prime Minister. Business tenancies: new procedures under the Landlord and Tenant Act 1954, Part 2. 2004. [online] Available from http://webarchive.nationalarchives.gov.uk/+/http://www.communities.gov.uk/documents/citiesandregions/pdf/131176.pdf [Accessed 4 March 2011] United Kingdom. The Code for Leasing Business Premises in England and Wales 2007. [online] Available from http://www.leasingbusinesspremises.co.uk/downloads/code_comm_lease090805.pdf [Accessed 4 March 2011] United Kingdom. Unfair Terms in Consumer Contracts Regulations 1999. 1999 No. 2083. [online] Available from http://www.legislation.gov.uk/uksi/1999/2083/contents/made [Accessed 4 March 2011] United Kingdom. Office of Fair Trading. Guidance on unfair terms in tenancy agreements. 2005. [online] Available from http://www.oft.gov.uk/shared_oft/reports/unfair_contract_terms/oft356.pdf [Accessed 4 March 2011] United Scientific Holdings Ltd v. Burnley Borough Council [1978] AC 904 Read More