Bell & Scott Property Update, March 2007

Welcome to the March 2007 issue of Bell & Scott Property Update.

Property Update provides a round up of relevant case law and other items which we consider may be of interest to those in the property industry.

In this month's issue we comment on a recent case which looked at the duty of a public authority and private developer to disclose information under the Freedom of Information Act, and a case where the absence of communication led to unnecessary confusion.

Recent Decisions

Freedom of Information… For Your Information

How does the Freedom of Information Act affect a developer working with a public authority?

The extent to which the Freedom of Information Act 2000 applies was considered in the case of Farndon Green Medical Centre.

The case concerned a request made under the Act for the provision of information relating to any proposed relocation or expansion of the practice’s medical centre. The proposals for the medical centre involved a Private Finance Initiative (PFI) scheme whereby a private developer would finance the building of new premises. The new premises would then be leased to the medical practice, with the local Primary Care Trust (PCT) paying the rent.

When dealing with the request for information, Farndon Green (being a public authority in terms of the Act) took a very narrow view of the information that they were obliged to provide in terms of the Act. The lack of information they provided prompted a complaint to the Information Commissioner.

The Commissioner appointed a Complaints Resolution Officer who contacted Farndon Green and explained the scope of the Act. Farndon Green then carried out an internal review of their handling of the request. At the end of the review, further information was provided to the complainant, consisting of emails exchanged with the developer, minutes of meetings, miscellaneous letters, drawings, plans and a report on alternative sites. Representatives of the medical practice also offered to meet with the complainant.

The complainant felt that that all the relevant information had still not been provided. In particular the complainant felt that he should be provided with:

• Heads of terms between the medical practice and the private developer;
• Information regarding requests for financial assistance from the PCT.

Farndon Green advised the Commissioner that the Heads of Terms had been withheld as the private developer involved had deemed them commercially sensitive.

The timing of the request was vitally important. When the request was made, the medical practice could have withdrawn from negotiations and entered into negotiations with a competitor. The Commissioner found that the information relating to the lease of the new premises (in relation to rent, rent reviews, repairing terms and costs incurred) was commercially sensitive. These details would have been of value to competitors should negotiations have broken down. This information was therefore exempt from disclosure in terms of the Act.

The Commissioner also confirmed that public interest in maintaining the exemption outweighed the public interest in disclosing the information. It was found that disclosure of commercially sensitive information before conclusion of negotiations could hinder successful completion thus working against the public interest.

In relation to financial assistance provided by the PCT, the Commissioner decided that the information was held by the developer for its own purposes and not on behalf of Farndon Green. The developer, not being a public body, had no obligation to disclose the information.

Michael Gilmartin, a Solicitor in our Corporate Team, comments:

 Although this case relates to the Freedom of Information Act 2000 (which does not apply to Scottish public authorities), the Freedom of Information (Scotland) Act 2002 imposes a similar duty of disclosure on Scottish public authorities and contains equivalent exemptions from disclosure. Consequently, this case is highly relevant to the developer in Scotland who may be party to a contract with a public authority (or a private body acting on behalf of a public authority) or have passed information on to a public authority. A developer should be extremely cautious when contracting or passing information to a public authority in Scotland as the public authority is under a general duty to disclose all information to the public (unless the information is exempt from disclosure) as this could result in information which is sensitive to the conclusion of a deal by a developer with a public authority being requested by and made available to a competitor prior to the deal's conclusion. The exemptions, which a public authority must consider in deciding whether or not to disclose information in such a situation, include whether the information, which is subject to a request for disclosure, has been provided in confidence or whether such information is commercially sensitive. Indeed, where a public authority possesses information which is commercially sensitive, it need not disclose the information unless it is in the public interest to do so.

The case of Farndon Green indicates that the disclosure of commercially sensitive information prior to the conclusion of a binding agreement may damage the negotiation process and would therefore be contrary to the public interest in maintaining the integrity and efficiency of the procurement process and such information should not be disclosed until negotiations are concluded. This is a ruling which should encourage developers to take some practical steps to protect any commercially sensitive information which has been passed or will be passed to a public authority.

Developers should consider singling out the exact information which is commercially sensitive and append it in a schedule stating that the information is commercially sensitive until the negotiation process is concluded or for another specific period. Obtaining the agreement of the local authority to what constitutes the commercially sensitive information and the period for which it is commercially sensitive would also assist in preventing a prejudicial disclosure to a competitor. However, it should always be remembered when dealing with public authorities that it is best to take as narrow a view as possible of confidential/commercially sensitive information as public authorities will not accept wide confidentiality provisions and will make the determination themselves of what constitutes commercially sensitive information.

The full text of the decision is available from the Information Commissioner’s Office here.

The recent Court of Session case of Middlebank Limited v. The University of Dundee and The Keeper of the Registers of Scotland concerned a dispute concerning the sale of tenement properties and, in particular, which properties were included in the sale.

Century 21 Homes Limited, an associated company of Middlebank Limited, entered into negotiations with The University of Dundee to purchase the upper floors of the tenement buildings at 2-8 and 10-16 Perth Road, Dundee (the Property). The University owned the whole of the tenement at 2-8 Perth Road, and the upper floors of 10-16.

Century 21 submitted an offer for the Property. The Property was defined in the offer as:

“The Property is as advertised, as described in the written particulars, if any, or as pointed out to the Purchaser on inspection and comprises first and second floor and attic flats at 6-12 Perth Road, Dundee.”

The qualified acceptance to the offer stated:

“On behalf of and as instructed by our clients, The University of Dundee, Perth Road, Dundee we hereby accept your Formal Offer… on behalf of your clients Century 21 Homes Limited, to purchase from our clients the first and second and attic flats at 6-12 Perth Road, Dundee.”

The qualified acceptance then went on to specify the Dispositions describing the Property. One of the Dispositions related to the whole of the property at 2-8 Perth Road.

A further formal letter was issued on behalf of Century 21 specifying that the Property was understood to be different from that stated in the qualified acceptance.

Further missive letters passed between the parties, including a letter nominating Importa Limited (a further associated company of Century 21) and Middlebank to be the purchasers of the Property.

An acceptance was issued, concluding missives on behalf of the University. The acceptance described the subjects as 6-12 Perth Road.

The issue arising from the missives was which properties had been included in the sale.

After conclusion of the missives a Disposition was prepared in favour of Middlebank. The Disposition referred to the property being sold as the whole tenement comprising nos. 2, 2A, 4, 6 and 8 Perth Road. The Disposition was signed and presented to the Registers of Scotland but the Disposition was lost during the process of Registration.

The Court found that the contract did not include the ground floor and basement premises at 2, 2A, 4 and 8 Perth Road. The intention of the University had been as stated at the outset, there had been no bilateral agreement agreeing to the addition of extra subjects to the sale and, rather, this arose from confusion between the parties.

Heather McCracken, an Associate in our Strategic Land Acquisition and Development Team, comments:

The basic problem in this case seems to have arisen due to two factors. Firstly, it would appear from the drafting that neither solicitor had any clear idea of what his client intended to sell or buy; the missives contain at least three different descriptions. None of the descriptions are completely accurate, although at least one of them was, at least, consistent with what had been advertised for sale.

The second problem is that again, neither solicitor seems to have understood the basis on which missives work. Irrespective of how many letters are exchanged, the terms of the contract are contained in the last qualified acceptance before the missive is concluded. It may incorporate conditions from earlier letters and refer to them for that purpose but it must do so clearly. In this case, the drafting was not as precise or clear as it might have been, which meant that the Court was required to interpret the contract.

In some respects, Middlebank is a fairly unremarkable case. It is, however, useful in restating the basis on which missives operate, the rules for their interpretation and, perhaps more importantly in emphasising how important it is for the solicitors involved, to understand exactly what their clients intend and to make sure that they embody those intentions as clearly as possible in their drafting.

Case referred to: Middlebank Limited v. The University of Dundee and the Keeper of the Registers of Scotland

The full text of the decision is available from the Scottish Courts Website here.

News

All New Construction Industry Scheme – Are You Ready?

The new Construction Industry Scheme (CIS) comes into force on 6 April 2007. The aim of the new CIS is to simplify a procedure which had become onerous and time consuming in its previous guise.

The new CIS brings with it many pitfalls, not least the fact that many companies who consider themselves to be ‘clients’ may be caught out by the new rules. Businesses, public bodies, landlords, tenants, department stores, breweries, banks, oil companies and property investment companies could all find themselves caught out by the new rules. This is because any company with an average annual expenditure of over £1m on construction operations in the previous three years will be affected. For a large concern, a modest refurbishment programme can easily exceed £1m per year. Any company meeting this test will continue to be deemed a contractor until they can satisfy HM Revenue and Customs (HMRC) that average expenditure has been less than £1m in three successive years.

The Changes to the CIS

The cards, certificates and vouchers of the current system will be scrapped, together with the annual CIS return. There will instead be a monthly return.

The major changes to the scheme are:

• The engagement status of subcontractors will have to be checked very closely. A declaration of the engagement status of any subcontractor who has received payments will be required as part of each monthly return. Engagement status is a complex issue which is not always as it seems, HMRC will be assisting contractors with this;
• If the work being undertaken falls within the scope of the CIS the verification status of the subcontractor must be considered. This will be done by contacting HMRC, they will then advise whether payment should be made gross or net;
• Notification must be made to the subcontractor if tax is deducted from a payment. Notification can be in any form that suits the contractor, but must contain certain basic information.

Contractors must submit their monthly returns by the 19th of each month. Failure to do so will result in automatic penalties of at least £100. There will also be fines for negligently or deliberately providing incorrect information. If compliance with the new CIS is not met, HMRC have the power to withdraw gross payment status.

Any company in doubt as to whether they might be deemed to be a contractor for the purposes of the scheme should seek immediate legal advice.

Information relating to the new CIS is available from HMRC Website here.

An update on forthcoming Scottish Planning Policies and Planning Advice Notes and when to expect them.

Scottish Planning Policies:

SPP 3: Housing Revision. Draft due summer 2007.
SPP 6: Renewable Energy: Revision of NPPG 6. Final version due spring 2007.
SPP 10: Planning for Waste Management: Revision of NPPG 10. Final version due early 2007.

Planning Advice Notes:

PAN (?): Town Centres & Retail Methodologies. Final version due summer 2007.
PAN 82: Local Authority interest development. Final version due spring 2007.