Bell & Scott's Property Update, April 2010

Welcome to the April 2010 issue of Bell & Scott’s Property Update.

In this month's issue we comment on a case where a tenant’s failure to appear at a rent review arbitration cost it dearly.

We also provide a Briefing on the proposed National Housing Trust which aims to boost the development of affordable housing through a public/private partnership.

In addition, we update you on a number of other relevant news items.

Recent decision

Late review far from ideal for Bello

Ideal View, as landlord, obtained a court order for possession of premises on the basis of its tenant, Bello, being in arrears with his rent. The lease was for a term of 50 years starting in 1969. Clause 1 of the lease set out the rent payable during the first 25 years of the lease and Clause 2 provided for a rent review to fix the rent for the remainder of the term of the lease. The rent after review was to be the open market rent. If the parties could not agree on the rent, the question should be referred to an arbiter. The first 25-year period expired in 1994. Bello bought the leasehold interest in the premises at auction in 2005. At that time, no rent review under Clause 2 had taken place. Ideal acquired the freehold interest in 2006 and raised the issue of rent review with Bello. There was no constructive dialogue between Ideal and Bello and, as a consequence, no agreement was reached, so the matter was referred to an arbiter. Bello took no part in the arbitration. The arbiter determined the new rent in 2007 and Bello did not appeal against his award. The new rent became due and Ideal claimed the difference between the old and new rents since 1994, as the rent review provisions in the lease allowed.

When the case came before the court, Bello argued that Ideal had waived its right to review the rent because it had, as landlord, failed to instigate the review for a period of 13 years and, in his view, triggering the review within the stated time was central to the rent review clause.

The court rejected this argument. The complaints about delay in seeking the rent review were all matters that Bello could and should have raised before the arbiter. Had he done so, the arbiter might well have decided that the review was too late. Those matters were not raised when they should have been and it was not open to Bello to use them in court in a flanking-attack. The court decided that Bello was bound to accept the decision of the arbiter. There was nothing in Clause 2 of the lease that said that the review had to take place within any particular time and there was nothing in the lease, either expressly or by implication, that indicated that time should be of the essence of the contract. Additionally, there was no evidence to establish a defence of waiver; mere delay, without more, would not deprive a landlord of its right to review the rent.

Bello had to pay the difference between the original rent and the new rent determined by the arbiter and this was to be added to the next instalment of rent due after the arbiter’s decision.

Richard Hart, Associate, comments:

This is an interesting case from the High Court in England which brings out the difference in approach between Scots and English law when it comes to courts ruling on landlords’ attempts to instigate late rent reviews. There have been a number of Scottish cases in which landlords have been deprived of their right to set the review process in motion sometime later, in circumstances where they have not instigated the rent review process on time and have continued to collect rent at the previous level. Consequently the right to review the rent was lost until the next review date under the lease (assuming there was one). In England, however, the courts have consistently allowed landlords to instigate rent reviews late, even considerably late (although the judge in the Bello case suggests that, had the tenant participated in the arbitration (to set the reviewed rent), the arbiter might well have decided that the review was too late).

It is perhaps worth mentioning two distinct sets of circumstances – the first is where the landlord has instigated the rent review process but, for some reason, the timetable set out in the lease has not been followed. In these circumstances, provided there is nothing expressly or impliedly in the lease to suggest that time is of the essence, then the landlord would most likely be able to continue the rent review, even some time after the review date. The outcome is likely to be similar north and south of the border.

The second situation (and this is the one in which the Bello case falls) is where the landlord has allowed the review date to pass and has continued to accept rent at the previous rate without instigating the rent review process (or even reserving its right to a rent review). In these circumstances, in Scotland, after the lapse of a certain period of time (how much will depend on the facts and circumstances of each individual case) the landlord is likely to be held to have waived the right to review the rent. In England though, the courts are more lenient and are prepared to allow a landlord to instigate the review late.

Modern Scottish leases will usually include a statement that if the landlord, after a review date, accepts rent at the old rate, this does not amount to a waiver by the landlord of his right to a review. However, whether or not this would be effective (and avoid the courts having to decide that the landlord has waived its right to a review) is open to doubt as it has not been tested before the courts.

One other, perhaps obvious, point should be taken from this case – that is that a tenant, on receiving a notice from a landlord (or a landlord receiving one from a tenant as the case may be) should not simply ignore the notice even if it believes that the notice is invalid or defective in some way. As can be seen from this case, the party receiving the notice may, subsequently, lose its right to object to the notice if it does not do so at the appropriate time.

Case referred to Adejola Bello v Ideal View [2009] EWHC 2808 (QB)

Briefing

The National Housing Trust  

The Scottish Futures Trust (SFT) has published a Prior Information Notice (PIN) on a prospective Framework Agreement to be entered into by the new National Housing Trust (NHT).

The NHT is being set up by the SFT to partner local authorities and housing developers, in the provision of affordable, mid-market rental level homes throughout Scotland.

The basics of the initiative are:

• The NHT would procure and acquire completed houses on stalled or completed developments;
• The NHT would be governed by a Board whose membership would include participating local authorities;
• The houses acquired would remain available for affordable rent for between five and ten years;
• Funding likely to be split 65% public and 35% private sector;
• Public funding would be secured through the Public Works Loan Board (PWLB) and would use the prudential borrowing powers of participating local authorities to fund sites in their area;
• Private funding would come from developers and other site owners, and likely to be split along the lines of 5% in loan notes and 30% in equity investment;
• The PWLB interest costs will be fully serviced by the mid-market rents;
• On exit, the houses would be sold with PWLB borrowing capital repaid in priority to private sector debt and equity;
• If there is a surplus, the public sector will use it to develop additional affordable housing.

Many local authorities have expressed an interest in participating in the initiative with the Scottish Government to procure delivery of around 1000 to 2000 houses in areas where there is already high demand for affordable housing at mid-market rents. The initiative is also intended to provide support and stimulation for the construction and house building sectors.

It is hoped that the NHT, which will kick-start activity on mothballed housing sites, will bring in about £130m of extra housing investment from the private sector.

You can find the PIN published by the SFT on the Official Journal of the European Union website accessible here. There you can request a copy of the NHT Initiative Briefing Paper. The Briefing Paper includes a list of key issues the SFT is seeking to consult the industry on.

If you have any queries on this new initiative for housing development, please get in touch with John Gallacher, Partner.

News Updates

Consultation on Long Leases

The Scottish Government is seeking comments on the draft Long Leases (Scotland) Bill which would implement recommendations made by a Scottish Law Commission (SLC) report in December 2006 on the conversion of ultra-long leases to ownership. Depending on the response to the consultation and the availability of parliamentary time, the Scottish Government intends to introduce a Bill in the current Parliament.

Historically, long leases tended to be granted by large estates, predominately in the years between 1770 and 1860, to encourage the industrialisation of Scotland. They were often for 999 years and tend to be concentrated in particular parts of Scotland.

In the proposed Bill, leases would be eligible to convert to ownership so long as they were granted for more than 175 years, have more than 100 years to run and the tenant does not opt out. Compensation and additional payments would be payable to landlords. Comments are to be submitted by 30 June 2010.

Details are available on the Scottish Government’s website accessible here

Statutory guidance on Environmental Protection Act 1990: Part IIA Contaminated Land

The Scottish Government has published statutory guidance on the application of The Radioactive Contaminated Land (Scotland) Regulations 2007, as amended by the Radioactive Contaminated Land (Scotland) (Amendment) Regulations 2007 and the Radioactive Contaminated Land (Scotland) Amendment Regulations 2009.

The regime for radioactive contaminated land has recently been amended to take account of experience gained during the application of the Regulations. In particular the definition of "substance" has been changed to include radon and its progeny (but not for land which has been contaminated by a nuclear occurrence). The changes being made also incorporate an amendment to further clarify that the body with responsibility for identifying radioactive contaminated land is the Scottish Environment Protection Agency (SEPA).

Other minor changes are also being incorporated to make the guidance clearer, particularly in its application to pollution of the water environment and to correct some typographical errors.

SEPA has been consulted during the drafting of this updated guidance, however, given the minor nature of the changes no other consultation was carried out.

Details are available on the Scottish Government’s website accessible here

Designing Streets: A Policy Statement for Scotland

The Scottish Government has issued its first policy statement for street design. The policy statement marks a change in the emphasis of guidance from street design towards place-making and away from a system focused upon the dominance of motor vehicles. It has been created to support the Scottish Government’s place-making agenda and is intended to sit alongside the 2001 planning policy document Designing Places, which sets out government aspirations for design and the role of the planning system in delivering these.

Details are available on the Scottish Government’s website accessible here

Consultation on high hedges: Research findings and analysis of responses

The Scottish Government has published its findings and its analysis of the responses to the consultation "High Hedges and Other Nuisance Vegetation", which set out, and sought views on, policy options to address high hedge disputes and potential delivery mechanisms.

Details are available on the Scottish Government’s website accessible here

Building Standards changes from 1 October 2010

Amendments to the building regulations under the Building (Scotland) Amendment Regulations 2010 and to the 2010 edition of the Technical Handbooks will come into force on 1 October 2010.

Homes for Scotland, which represents companies building 95% of new homes built for sale across the country as well as an increasingly significant proportion of affordable housing, believes that the changes may further delay the provision of essential new homes to meet both private and social needs. 

The new 2010 Technical Handbooks can be obtained in hard copy, from The Stationery Office and are available for download from Building Standards’ website accessible here

Improving buildings standards

A new certification mark to recognise high standards throughout the construction industry has been launched by the Scottish Government.

The Approved Certifier Registration Mark will be used by building professionals and trades people across Scotland as a sign of their competence, experience and compliance with building standards.

Scotland has several Government approved certification schemes which recognise the skills and expertise of building professionals. Each approved scheme will use the new mark as a universal badge of quality. Members of each scheme - also known as Approved Certifiers - will be permitted to align the new registration mark with their business.

Details are available on the Scottish Government’s website accessible here

Towards a Low Carbon Economy for Scotland: Discussion Paper

The Scottish Government has issued a discussion paper setting out its plans to move towards a low carbon economy in Scotland, as part of the overarching government economic strategy. It identifies the key dimensions of a transition strategy towards a low carbon economy, describes its approach and timeframe to develop the strategy and seeks to engage key stakeholders in the strategy process.

Details are available on the Scottish Government’s website accessible here

BIS consultation on charges

The Department for Business Innovation and Skills has launched a consultation proposing to revise the current scheme for the registration of company charges under the Companies Act 2006. The proposals include possible changes to:

• which charges must be registered;
• how charges may be registered including the introduction of electronic registration at Companies House; and
• the consequences of registering and not registering a “registrable” charge.

Views are sought both on the proposals and on a number of questions, including whether the time limit for registration should be abolished. The document also considers the scope for treating as registered under the Companies Act charges that have been registered in certain specialist registers like the Land Registers in Scotland and England & Wales.

Details of the consultation and how to respond are available on the Department for Business Innovation and Skills website accessible here. Responses are to be received by 18 June.

Minor changes to the option to tax

HMRC has issued Information Sheet 08/10: VAT: Land & Buildings which makes minor changes to the option to tax procedure. Property developers should note that one of the changes means overage payments will prevent revocation of an option to tax 20 years after it is exercised. In practice, where sellers are in that position, their buyers may need to take precautions against an ineffective revocation.

Details are available on HMRC’s website accessible here