Bell & Scott Property Update, October 2007

Welcome to the October 2007 issue of Bell & Scott’s Property Update.

In this month's issue we comment on a case which made its way to the European Court of Human Rights and resulted in land owners losing their property to squatters without compensation. Then we comment on a case which serves as a timely reminder to landlords that sticking strictly to stated timescales in the rent review provisions in a lease can be vital.

We also update you on (1) the Scottish Government’s Task Force initiative to speed up housing delivery; (2) the launch of flood area maps for Scotland; (3) the publication of a handbook providing guidance on how to convert traditional buildings; and (4) the end of EARL as we knew it.

Recent Decisions

J.A. Pye (Oxford) Ltd and Others v The United Kingdom

The epic legal battle over the English law of adverse possession has finally concluded to the huge relief of the UK Government. The news, however, was not good for the developer concerned and is unlikely to be good news for the other land owners with similar claims over land in England & Wales, which have been put on hold pending the outcome of this case.

The case involved 75 acres of agricultural land in Newbury, Berkshire. The land was owned by the Pye family and their title was registered accordingly. Mr and Mrs Graham owned adjacent land and occupied the Pyes’ land under a grazing agreement. When that agreement came to an end on 31 December 1983, the Grahams continued in occupation and continued to use the land for grazing and other agricultural purposes, despite requests for them to leave and a refusal to renew the agreement.

Under English law, no action can be taken to recover possession of land from a squatter once that squatter has been in occupation for 12 years and has indicated an intention to possess the land. In 1997, the Grahams took steps to protect their legal right to the land on the basis they had been in occupation for more than 12 years by registering “cautions” at the Land Registry. The Pyes sought to cancel these and raised proceedings to recover possession. The High Court upheld the Grahams’ rights by virtue of adverse possession and the Pyes appealed. The Court of Appeal overturned that decision, but under a further appeal, to the House of Lords, the Grahams’ legal right to the land was upheld.

Having lost the land to the Grahams, the Pyes decided to take action against the UK Government. They claimed that the UK Government had breached Article 1 of the European Convention on Human Rights and sought compensation as a result. Article 1 provides that: “no one shall be deprived of his possessions except in the public interest” but this is subject to: “the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest”. The Pyes sought compensation from the UK Government in the region of £10 million.

At first, The European Court of Human Rights (“the ECHR”), decided that the UK Government had breached Article 1 and the Government was ordered to pay compensation to the Pyes (the amount was never settled). However, the UK Government requested a referral of the decision to the Grand Chamber of the ECHR, whose decision is final. On 30 August 2007, the Grand Chamber overturned the original decision by a majority of ten to seven.

The Grand Chamber decided that the English law of adverse possession controls the use of land rather than deprives an owner of his possessions within the meaning of Article 1. The Court commented that limitation periods, such as this 12 year rule, were useful to ensure legal certainty and finality and it was also relevant that the Pyes needed to have taken only minimal action, such as demanding rent, to prevent the time limit running against them. As such, the issue of compensation was not applicable.

Kirsty Martin, a Senior Solicitor in our Property Dispute Resolution Team, who is also qualified in England & Wales, comments:

This outcome is of huge importance to the UK Government. The Government avoided paying compensation to the Pyes and the floodgates will not be opened to other claims from landowners who have lost land as a result of the adverse possession rule. Since the saga with the Pyes commenced, English law on adverse possession has been changed in respect of registered land. There is now a notification procedure which the squatter must follow, giving the landowner time to take action, and then the squatter can only take title if certain conditions are satisfied. The law remains the same, though, for unregistered land.

Scotland, of course, does not have the same concept of adverse possession and therefore the same consequences could not have arisen in Scotland. However, this does not mean that those with land in Scotland need not be concerned with who is in occupation of their land. Scots law does have a rule of positive prescription, which can create or strengthen rights in land, through the occupation of land for 10 years or more. This means that someone with a competing title to land can perfect their title simply by being in occupation for 10 years without legal challenge and this can defeat someone who, on the face of the title documentation, has a much stronger claim. The difference with English law is that, in Scotland, there must be a registered title document for the occupier to base his claim on, although the validity of that document, such as a disposition, could be open to challenge. The Land Register will no longer accept dispositions of this sort (known as a non domino dispositions) unless the occupier can show good reason, but difficulties do still arise as a result of competing titles registered before this policy was adopted.

The key point to note for all landowners, wherever their land may be situated, is to be aware of who is in occupation of your land. Ideally, you would ensure all land is properly secured, but this is not always feasible and so regular checks should be made to guarantee that there is no one in occupation who should not be. If there is someone in occupation, then steps to remove them should be taken as soon as possible. As well as preventing any rights in the land arising, quick action can limit the damage that squatters can potentially cause.

The usual procedure for removing squatters is first to serve a notice on them informing them that they have no right to be in occupation and demanding that they vacate. In a number of cases we have found this to be effective, particularly when court action and recovery of the associated costs is threatened. Should the threat not be sufficient, then proceedings must be commenced, but the usual time limits with court proceedings can be reduced in most cases and a decree for ejection can be obtained within a couple of weeks.

A full text of the House of Lords decision is available on the British and Irish Legal Institute website accessible here and the decision of the ECHR is accessible here.

Bad timing proves costly

The Secretary of State for Communities and Local Government v Standard Securities Limited

In this rent review dispute, the tenant, the Secretary of State, asked the court to decide on the amount of rent it should pay for its premises on Kennington Park Road, in central London. It occupied the premises under a Lease from Standard Securities Limited (“the landlord”).

A schedule to the lease contained a method for calculating the rent when it fell to be reviewed every seven years. The new rent was to be the greater of (a) the rent being paid at the review date or (b) the amount of the current market value on that date. If the landlord and the tenant could not agree the current market value, the matter was to be decided by an independent surveyor, on the written request of the landlord. The schedule also said that if no agreement had been reached or written request made to the surveyor by the review date, the rent for the next seven years would remain as it was.

The rent fell to be reviewed in March 2006. The current market value had not been agreed between the landlord and the tenant before that date. The landlord, having received a letter from the tenant asking for confirmation that the rent was to remain the same, asked the independent surveyor to determine the rent in June 2006.

The tenant argued that, following the clear wording in the schedule to the lease, the rent for the next seven years had to be the same as it was paying in March 2006. The landlord argued that timescales in rent review clauses did not have to be strictly adhered to and, therefore, the surveyor’s valuation should apply. If this argument was accepted, the landlord would avoid an estimated loss of £250,000 per annum over the next seven years.

The Court confirmed the basic principle that “time was not of the essence” in rent review clauses. That basic principle held good where a deadline is given for a notice to be served and time was not expressly stated to be “of the essence”. However, where the wording used in the lease suggests that strict adherence to timescales was an important part of the agreement reached between the parties, the position is different. If a lease sets out clear consequences for the situation where a party fails to take a certain step on time, then, the normal presumption (that time “is not of the essence”) does not apply. In this lease, failure to refer the determination of the current market rent to the surveyor by the review date meant the 2006 rent would remain the same for the next review period. Given the importance of rent review in any lease, if the parties choose to state that a deemed rent is to apply if a step is not taken on time, a court will not interfere to re-write the contract.

Keith Rawlinson, a Solicitor in our Retail & Leisure team comments:

The tenant struck gold in this case. Although decided in England, it serves as a timely reminder to landlords of property in Scotland. Scots Law also recognises the presumption against time “being of the essence” in rent review clauses but only where there are no indications in the lease that this should not be the case.

Many older leases, of course, state clearly that notices triggering rent reviews must be served on time. More modern leases try to avoid the downsides which can affect both parties by expressly not requiring strict adherence to timescales. For the landlord, the downside is the risk of missing an opportunity to increase the annual rent. Once a time-tied, trigger date has passed, the landlord loses its right to review. The rent will remain at the rate payable prior to the review date which may be for a five year period. An expensive mistake! There may also be a downside for the tenant where the lease provides that the tenant must serve a counter notice within a certain period, rejecting a landlord’s proposed rent. The tenant misses the date and then finds itself subject to an inflated annual rent, being the landlord’s starter for ten, as opposed to the rent as agreed between them or determined by an expert.

This case reminds us that where time limits are laid down, and clear and unambiguous consequences are given for failure to abide by such time limits, the court is likely to hold the parties to them, even where the words “time is of the essence” are missing.

To avoid the pitfalls, both landlords and tenants should diarise the dates by which review notices are to be sent and third party appointments made. The financial penalty for failing to do so can, as in this case, be severe where the wording of the lease makes timing an essential element of the contract struck between the parties.

For landlords, even where time is not explicitly stated to be central to the contract, they would do well to ensure that they have effective case management systems in place.

News

D-Day for Housing Supply Task Force

The Housing Supply Task Force, the new body charged with tackling obstacles that are hampering the provision of more homes, has held its first meeting.

Communities Minister, Stewart Maxwell, chaired the session with a membership drawn from local authorities, house-builders, the housing association movement and housing interest groups.

In the current climate of supply failing to meet demand, the Task Force will challenge the different sectors to find ways to deliver more homes, more quickly, while ensuring high environmental standards.

The Government’s hope is that the Task Force will shake up the current systems and drive action where change is needed. It believes that the group contains the main power brokers and representatives of organisations that will help resolve the problems that get in the way of adequate housing delivery in Scotland.

Details of the Membership of the Task Force can be accessed here

The most accurate picture of properties at risk of flooding in Scotland has been launched by the Scottish Government.

The maps are divided into local authority areas, providing focused visual impressions of the areas most at threat and liable to flooding once every 200 years. It is hoped that the maps will help professionals to plan against and tackle flood risk head on.

Almost 100,000 properties in Scotland are built on river or coastal flood zones. Glasgow City has, potentially, the most properties at risk in the river flood zone, with 11,500 houses and 250 commercial sites exposed. Falkirk is most at risk from coastal flooding with more than 6,000 houses in risk locations.

The river-based flood zone in Scotland covers 4.3 per cent of the country; the coastal flood zone covers 0.7 per cent. Of the estimated 2.5 million properties in Scotland, 3.6 per cent are located within a flood zone, either river-based or coastal.

The local authority with the largest area covered by the coastal flood zone is Highland, whereas the local authority with most properties located in the river flood zone is Glasgow City.

The flood maps maintained by SEPA can be accessed here and the final Report made by the Flooding Issues Advisory Board to the Scottish Government can be accessed here

The Good Developer Guide to Traditional Buildings

Historic Scotland has issued a guide to those involved in the conversion of traditional buildings.

The guide aims to provide advice to practitioners, developers, building owners and local authorities regarding the application of the Building ( Scotland ) Regulations 2004 to the conversion of traditional buildings. Its function is to support existing Technical Handbooks by identifying and resolving typical areas of difficulty that may be encountered during the conversion of such buildings.

The guide comes in two parts. Part 1 gives the user guidance on: (1) what makes a building significant; (2) issues concerning the performance of traditional buildings; and (3) legal matters regulating such buildings. Part 2 covers the application of the standards that are most likely to have an impact on traditional buildings giving (1) the text of each standard; (2) a commentary of the potential influences of the standard on traditional buildings; and (3) the recommended approaches to be taken to meet the requirements of the standard.

The Guide may be accessed here

EARL shunted to siding

The Scottish Parliament has approved an alternative to the Edinburgh Airport Rail Link (EARL). It is hoped that the alternative scheme will be delivered for a fraction of the cost of EARL project and without high risk.

The proposals are:

• To add an airport station at Gogar on the Fife railway line. This will complement rather than compete with the tram project. This can be delivered sooner than Audit Scotland believed EARL would have been completed.
• To add an interchange between the tram and the rail network at Gogar, delivered in time for the opening of the tram. This will allow passengers from Fife and further north to access the airport easily and quickly without the need to travel into the city centre as now.
• To build a rail link between the Fife and Edinburgh-Glasgow routes - the Dalmeny chord. This would allow Edinburgh and Glasgow trains to stop at the new airport station.

Full details of the alternative proposal given by the Minister, Stewart Stevenson can be accessed here.