Cases and Examples of Property Management in Law - Case Study Example

Case s Mr. Smalls: In the case of Mr. Smalls, it would be necessary to renew the lease. There is a two step procedure that he will have to follow. Firstly, he would need to submit an application to the Court to protect his security of tenure. Secondly, he will have to seek a new tenancy by serving a notice to the landlord using Form 11. Since he does not wish to continue the lease on the existing terms, he will have to negotiate with the landlord to renew the lease on the revised terms that he seeks. The Landlord also has the option to negotiate with Mr. Smalls to provide some incentives to continue the lease on the existing terms. Tenants have security of tenure under the Landlord and Tenant Act of 1954 when the property is occupied by a tenant “for the purpose of a business carried on by him”.2Although only two months remain for the expiry of the lease, this security of tenure may provide Mr. Smalls the right to remain on the premises, although he will have to apply for a new tenancy. If the Landlord wished to terminate the lease, he should have given a notice of determination of the lease “not less than six months before the date of the termination”, i.e., in this case, April 2009. Mr. Smalls would have the right to apply for a new tenancy under the provisions of Part II, Section 26 of the Act. The Landlord however, may be entitled to refuse to renew the lease with the Court upholding his right to refuse in some instances. One of these is if the landlord wants to demolish all or part of the property in order to redevelop it, but cannot do so with the tenant still in occupation,3 although Mr. Smalls may be entitled to receive compensation for the disturbance caused if this is the case.4 He will be entitled to compensation on the basis set out under the Act5, i.e, “the product of the appropriate multiplier and twice the rateable value of the holding.” Mr. Smalls fulfils the necessary conditions which are also specified under the Act, i.e, he has occupied the property for more than 14 years and specifically for the purpose of carrying on his business.6 Where the question of rent review is concerned, rent review clauses provide investors in property with a steady income stream and a growth in income over the term of the lease7.In a series of cases, the wording of the lease agreements on rent review clauses was held to be upward only. In the case of Royal Insurance Property Services Ltd v Cliffway Ltd8 the lease agreement allowed the landlords to serve a notice on an increase in rent and the Court held that there was no provision for a downwards review. In the case of Standard Life Assurance v Unipath Ltd9 the Court also observed that the purpose of a rent review clause cannot necessarily be anticipating changes in money; it might also represent the desire on the part of investors to protect themselves against risk and allow for the certainty of income contained in a rent review clause, which may not support a downwards review. In a consultation Paper on the options available for deterring or outlawing the use of upward only rent review clauses, disadvantage of such review clauses have been pointed out10. For instance, in a falling market, tenants would be paying more than new market entrants and will be at a disadvantage; additionally tenants can go out of business and there may be legal disputes generated when an upward only rent review clause subsists during an economic downturn. This is also the case with Mr. Smalls where a new unit has been let out for a smaller sum. But the British Property Federation reports that shorter leases and annual rent reviews are becoming more frequent in British commercial leases,11 hence Mr. Smalls may be able to get a lower rent if he is able to successfully negotiate this with the landlord. Similarly, the question of who is to be responsible for repairs and to what extent, will also have to be determined through negotiation between the parties. If the landlord does not wish to proceed with the proposed redevelopment of the property and wants Mr. Smalls to renew the lease on the original terms, he has the option to offer incentives such as a reverse premium or capital contribution12, which would help to maintain the headline rent and also to ensure that any rent review clauses remain upward only. Alternatively, the two parties can also opt for regearing of the lease, whereby the rent review conditions are modified, such as opting for an open market review with maximum and minimum uplifts and extending the lease term, through a deed of variation of the lease.13 Holmes’ lease: In this instance, the issue involved is the question of repairs and it does not appear likely that Mr. Holmes can be forced to complete the repairs, therefore the only course of action would be to leave matters as they are, especially since the damages are not substantial. The lease between Mr. Holmes and his landlord contains a repair clause and since t is a commercial property, the landlord has the right to enforce the repairing clauses of a lease through a Schedule of dilapidations, or alternatively an Interim schedule as has been served on Mr. Holmes. This requires that disrepairs identified in the schedule may need to be immediately fixed so that they do not lead to deterioration in the structure of the property. In a commercial lease such as Mr. Holmes’ the tenant is obliged to carry out the repairs or pay the landlord damages equal to the landlord’s costs in carrying out the repairs himself,14 with the damages amount payable by the tenant not exceeding the actual costs incurred by the landlord in carrying out the repairs15. It is however, a generally accepted principle that repairing covenants cannot be specifically enforced against the landlord or vice versa, as per the case precedent established in Hill v Barclay,16 especially if the repairs are of a minor nature. In the case of Rainbow v Tokenhold Ltd17 dilapidation notices were served on a tenant under the Housing Act of 1985 and abatement notices under the Environmental Protection Act of 1990. But in examining the reasons provided by the landlord for the enforcement of the repair notices, the Judge found that there was no life in them. The Judge also referred to Halsbury’s Laws of England which indicates that repairing covenants can be enforced only when “the works are sufficiently defined” and the order is not being sought purely as a means to avoid statutory payment of damages. Where the repair of the plaster work is concerned, the question of repair will arise only to the extent that the tenant is required to maintain the premise sin good and working condition, hence the damages to the plaster work must pose a significant threat before their repair can be enforced through a schedule of dilapidations. The tenant is not required to carry out improvements to the property and if the repair of the plaster can be achieved through a patch up job by Mr. Holmes, this may be acceptable to the Courts as well18. The Leasehold Property Repairs Act of 1983 also restricts the enforcement of repairing contracts in long leases that are taken on small houses, especially where the tenancy has been granted for a period not less than seven years and where at least three years of the lease period remain19. Mr. Holmes may thus be able to manage with the minimum repair to the plasterwork. In the case of replacement of the bulbs, it appears unlikely that the landlord can enforce it successfully, because the Energy Performance of Building Directive that was introduced in 2006 only encourages landlords and tenants to adopt green measures but does not actually compel them to do so, leaving it to their discretion. All these aspects would favour Mr. Holmes, especially because his tenancy is long term and there are still seven years left on the lease. This also entitles him to claim statutory relief from forfeiture proceedings arising out of his failure to perform the repairs20. Additionally, in the case of Ultraworth v General Accident21, where a similar interim schedule of dilapidations was served on the tenant, the Court held that the tenant’s liability to repair was totally extinguished, thereby reducing the value of the landlord’s interest point in terms of enforcing action on a schedule of dilapidations. Mr. And Mrs. Hiolternionen: This couple wishes to determine the lease, but the terms of their lease specify that they must provide a notice of termination of lease of at least six months. Tenants have not provided such a notice in writing, and their letter giving notice is dated 28th February 2009 is less than a month from the date of effluxion of the lease, when it would automatically expire and would have to be renewed or determined. In this instance, the lease may need to be terminated, but the issue of return of deposit to the couple becomes questionable and the Company may be liable to return only one month of deposit, after the additional liability of the couple for rents for an additional six months after notice of vacation is provided, is also deducted. The Hiolternionen lease is a fixed term lease and under the provisions of the Landlord and Tenant Act of 1954, if a tenant does not wish to continue with such a lease, s/he is required to provide “not less than three months notice in writing.”22 While the Hiolternions have paid the rent up to March, a strict application of the law would indicate that since their date of giving notice of vacating is only in February, they would be responsible for paying of rents under the tenancy at least for another two months, before the tenancy would be officially determined. The Courts are however, likely to apply the terms of the contract between the two parties in arriving at a decision on any dispute in the case. Since the specified notice period under the lease agreement is six months, the Hiolternions would therefore be liable for payment of rents for an additional five months and may be entitled to receive back only one month’s worth of rent from the deposit they have paid rather than the entire six month deposit which is which Megadosh management. In the case of William Hill (Football) Ltd v Willen Key and Hardware Ltd23 it was held that where a tenant surrenders a lease between rent payment dates, it is not entitled to any refund of rent paid in advance. Applying this precedent, the Hiolternions may not be entitled to any refund of their six month rent deposit. It must be noted that Megadosh management incurs administrative costs in managing properties for its owner clients. Similarly, where business leases are concerned, it is more difficult to find potential tenants on short notice, which is why long notice periods are desirable so that necessary planning can be done to secure a new tenant. Since the Hiolternions were protected by security of tenure and did not provide any earlier indication that they would be vacating, the owner landlord will suffer losses from a vacant property until a new owner is found. On all these grounds, as well as the legal basis supporting a sufficient notice period, the Hiolternions may be able to leave the property and terminate the lease on 25th March, 2009 but may be able to claim a refund of their deposit, or at best may be able to receive only one month’s value of deposit. Alternatively, the couple has the option to continue their lease in order to avoid potential loss of their deposit. Since their initial lease is coming to an end on March 25, 2009, they have the option to negotiate a capped rental increase, so that they can take advantage of the lower market rents currently prevailing due to the recession, during the rent review process coming up on expiry of the lease (Darnton, 2009). If they choose to rent the property for five months more, after the notice they have given, they may be able to receive their deposit back when they finally leave. Mr. Pants’ lease: Mr. Pants’ lease raises the issue of assignment of lease for a different purpose than what is specified in the original contract. In this instance, the landlord may need to be convinced to agree to the assignment of the lease, unless he can offer what the Court might consider reasonable grounds to support his refusal. Unless there are very good reasons to support such a refusal, it appears unlikely that this assignment can be successfully opposed by the landlord. In general, the interest that a landlord retains on a property through reversion and rental income justified a restriction being placed upon the alienation of a lease, because it helps to preserve those values that went into the selection of the original tenant.24 Hence restraints on a lease are deemed valid. The restriction on the lease which exists in Mr. Pants’s case clarifies that the premises are to be used only for the retail sale of gentleman’s clothing, with any other purpose, such as for example, the second hand cars, requiring the landlord to “approve in writing” the new purpose, and “such approval not unreasonably to be withheld.” The wording in the lease therefore places this agreement in the category of a fully qualified restriction. Such a restriction requires the landlord’s consent but also imposes a standard that limits the discretion of the landlord in refusing approval. The case of Killick v Second Covent Garden Property Ltd25 however established a long standing principle that a landlord would not be unreasonable in refusing consent on the grounds of use for a different purpose, which in effect gives rise to a breach of the user covenant. But Lord Denning MR in the case of Bickel v Duke of Westminster26 expressed the view that since circumstances associated with restrictions may be infinitely various, strict rules cannot be formulated on the landlord’s rights to refuse consent. He conceded that guidelines may be necessary but held that a decision on the landlord’s or tenant’s rights had to be formulated on the basis of good sense and cannot be treated precedents setting out a strict rule of law. This approach was also supported by the House of Lords in the case of Ashworth Frazer Ltd v Gloucester City Council27, which rejected the principle established in the case of Killick. Hence it is the extent of reasonableness associated with the landlord’s decision to refuse which will be looked into by the courts in determining whether a refusal is justified. 28 Some of the reasons behind the landlord’s decision that could contravene a finding of reasonableness could include29 trying to secure a commercial or collateral benefit, or secure a better bargain or rights not already contracted for in the lease agreement.30 Where the question of rent review is concerned, the fact that the landlord has passed the rent review date does not necessarily deny him the right to pursue it. It is generally the landlord who has the sole right to initiate a rent review and in the case of Johnsons of London Ltd v Protec Trust Management31 the landlord was able to delay the implementation of the review. Rent reviews also provide for the landlord to initiate a rent review process by issuing a “trigger notice” and the validity of such notices has been an issue in the cases of Norwich Union Life Insurance Society v Sketchley plc.32 Letters from the tenants have been held to be valid counter notices in the cases of Nunes v Davies Laing and Dick Ltd33and British Rail Pension Trustee Co Ltd v Cardshops Ltd34 where the open market rental rate was the subject of dispute between the landlord and tenant. Mr. Pants may have some basis to contest a subsequent rent review carried out by the landlord on this basis, but the latter’s failure to carry out the review does not necessarily indicate that his rights to do so have been waived as Mr. Pants suggests. The landlord can also decide on a rent review arbitration35 and if Mr. Pants’ business has been doing fairly well, his accounts may also be admissible in the rent review determination.36 Bibliography American Law Institute, 1977. “Restatement (Second) of the Law of Property”, Landlord and Tenant, Section 15.2, comment a. Commercial Property. ; “Consultation on use of upward only rent review clauses: a chance to have your say”. http://www.sghlaw.com/leisure/articles/CONSULTATION%20ON%20USE%20OF%20UPWARD%20ONLY%20RENT%20REVIEW%20CLAUSES.pdf; Darnton, Dolf, 2009. “Tenant incentives”. Heighton, Mark and Rodgers, Marianne, 2009. “Lease regearing”. Part II, Section 23 of the Landlord and Tenant Act of 1954; http://www.opsi.gov.uk/RevisedStatutes/Acts/ukpga/1954/cukpga_19540056_en_4#pt2-pb1-l1g23; Press Release, 2005. “BPF/IPD Annual lease survey shows Lease lengths continue to fall”, http://www.bpf.org.uk/newsroom/pressreleases/document/20971/bpfipd-annual-lease-survey-shows-lease-lengths-continue-to-fall; “Security of tenure under the Landlord and tenant Act of 1954”, http://www.justinnelson.co.uk/pdfs/securityOfTenure0904.pdf; “Renewing a lease”, http://www.rics.org/NR/rdonlyres/54A1FBD6-C24B-4D66-AFC1-36395E65068F/0/RenewingaLease.pdf; Cohen, Roger, 2009. “Rent Review cases” Darnton, Dolf, 2009. “Tenant incentives”. Cases Cited: Ashworth Frazer Ltd v Gloucester City Council (2001) 1 WLR 2180 Bickel v Duke of Westminster (1976) 3 All ER 801 at 804 British Rail Pension Trustee Co Ltd v Cardshops Ltd (1987) 282 EG 331 Corunna Bay Holdings Ltd v Robert Gracie Dunn Ltd (2002) 2 NZLR 186 Dodds v West Register (Public Houses III) Ltd (2008) 22 EG 169 (CS) Hill v Barclay (1810) 16 Ves Jun 402, 33 ER 1037 Jervis v Haris [1996] 1 All ER 303, CA; [1996] Ch 195 Johnsons of London Ltd v Protec Trust Management [2000] EGCS 114 Killick v Second Covent Garden Property Ltd (1973) 2 All ER 337 Norwich Union Life Insurance Society v Sketchley plc (1986) 2 EGLR 126 Nunes v Davies Laing and Dick Ltd (1986) 1 EGLR 106 Re Gibbs & Holder Bros & Co Ltd (1925) All ER Rep 128 Rainbow v Tokenhold Ltd (1998) 9824 Estates Gazette 123 Royal Insurance Property Services Ltd v Cliffway Ltd (1996) EGCS 189 Standard Life Assurance v Unipath Ltd 1997 ECGS 69 Southend Ltd v Strachan & Henshaw Ltd [2007] EWHC 1289 Ultraworth v General Accident File & Life Insurance Corporation plc [2000] L&TR 495 William Hill (Football) Ltd v Willen Key and Hardware Ltd (1964) 190 EG 867 Read More